To make algal bio-fuel economically viable, extraction of value added co-products along with oil, appears absolutely necessary. The major barrier in algal co-product development is the lack of an efficient separation technology. To address this issue a unique two-step sequential hydrothermal liquefaction (SEQHTL) technology for the simultaneous production of value-added polysaccharides and bio-oil from algal-biomass was developed. The first step involves the subcritical water extraction of valuable algal (Chlorella sorokiniana) polysaccharides at 160 degrees C. The polysaccharide rich water extract was removed and precipitated with ethanol. In the next step, the extracted biomass was liquefied to bio-oil at 300 degrees C. The yield of bio-oil by SEQHTL was 24% of the dry weight. In addition, this method also extracted 26% of the polysaccharides present whereas; direct hydrothermal liquefaction (DIRHTL) only generated 28% bio oil. In the SEQHTL method bio-char formation was remarkably low, and as such, SEQHTL produce 63% less bio-char than DIRHTL. The yield of bio-char production is negatively correlated to polysaccharide content (p > 0.98) suggesting majority of carbohydrates present in algal biomass were converted into biochar. This conversion did not significantly influence the bio-oil production. Comparative GC-FID, GC-MS, NMR, FT-IR analysis and ESI-MS of the bio-oil extracted by SEQHTL with DIRHTL showed no significant differences. Elemental analysis of the SEQHTL bio-oil demonstrated that it contained 70% carbon, 0.8% nitrogen, and 11% oxygen. This method demonstrates an important proof-of-concept step towards the concomitant production of value added co-products, along with bio-oil, from algal biomass. (C) 2011 Elsevier Ltd. All rights reserved.