To prevent increase in the oxygen amt. even after a washing process and to stabilize against water by incorporating Fe, Ca, O and at least one element selected from Nd, Sm, Ce and Pr into an alloy powder and subjecting the powder to oxidation resistant treatment with nitrogen.

At least one kind of rare earth metal selected from Nd, Sm, Ce and Pr, and Fe metal powder and granular Ca are mixed. The mixture is heated to 600 to 1200°C in an Ar atmosphere and then heated at 250 to 800°C in nitrogen or in an atmosphere containing nitrogen. The reaction product is treated with water and a weak acid aq. soln. By nitriding treatment, most of the unreacted Ca is converted into calcium nitride such as CaN. Since the calcium nitride rapidly reacts like CaO with water, it can be easily removed. The granular Ca is preferably mixed in an amt. as about 1.5 times as the oxygen atom equiv. of the rare earth oxides.