Carbon encapsulated magnetic (metal) nanoparticles (CEMNPs) have wide applications in biomedicine and the magnetic recording industry. However, synthesis of such particles with a high coercive force and good ferromagnetism is still a great challenge. The present study reports a new method for the continuous production of CEMNPs of high purity. This involves the spray pyrolysis of a mixture of iron pentacarbonyl and ethanol at 500-900 degrees C. Results show that the Fe (or Fe3C) particles synthesized at 700 and 900 degrees C were well encapsulated by graphitic layers with rare byproducts such as carbon nanotubes, nanofibers, or bulk amorphous carbon. Those synthesized at 700 degrees C had a particle size of 30-50 nm, a giant coercive force of 867 Oe, and a good magnetic remanence of 33% at room temperature. The present approach based on spray pyrolysis is advantageous over previous ones in suitability for large-scale production, and the synthesized material has wide applications in many fields.