An electric arc discharge in de-ionised water between a solid graphite cathode and an anode made by compressing Ni and C containing powders in a mass ratio of Ni:C = 7:3 was used here to prepare carbon encapsulated Ni nanoparticles in the form of powder suspended in water. The morphology of the produced material was analysed using high resolution transmission electron microscopy (HRTEM) and X-ray diffraction (XRD). The magnetic properties of the samples were determined using a Princeton vibrating sample magnetometer (VSM). Collection of the powder produced from different depths in the water container has proved to be an effective method for obtaining samples with narrow particle size distribution. Further material purification by dry NH4 plasma etching was used to remove the amorphous carbon content of the samples. XRD and HRTEM analysis showed that the material synthesized is fcc Ni particles with mean particle size ranging from 14 to 30 nm encapsulated in 2 to 5 graphitic cages. The data suggests that the process reported has the ability to mass-produce carbon encapsulated ferromagnetic nanoparticles with desired particle size distribution, and hence with controlled size-dependent magnetic properties.