Abstract: This invention relates to water soluble iron oxide nanoparticles and a method of its preparation. More specifically, this invention relates to a method of manufacturing water soluble iron oxide nanoparticles uniform in size by coating polyvinylpyrolidone, a biocompatible polymer that can be intravenously administered via thermal decomposition, on the surface of iron oxide thereby enabling to control the size of resulting particles, and water soluble iron oxide nanoparticles coated with polyvinylpyrolidone. The above-mentioned water soluble iron oxide nanoparticles have excellent image contrasting effect and are thus useful as MRI contrast agent.