PURPOSE: To obtain the objective compound in high efficiency, by iodinating biphenyl or diphenyl ether, hydrolyzing the product under basic condition, regenerating iodine from by-produced iodide by electrolytic oxidation and returning the regenerated iodine to the above reaction step.

CONSTITUTION: A compound of formula I (n is 0 or 1) is made to react with iodine in the presence of an oxidizing agent, the resultant compound of formula II (X is I or H) is hydrolyzed with an alkali metal hydroxide in the presence of a copper or iron compound to obtain an alkali metal salt of the objective compound of formula III (Y is H or OH) and an alkali metal iodide, the objective compound of formula III is separated from the reaction mixture, the obtained aqueous solution of alkali metal iodide is subjected to electrolytic oxidation and the regenerated iodine is returned to the above iodination process. Iodine can be recovered and reused by this process without producing by-product nor necessitating expensive reagent. It is preferable to carry out the electrolytic oxidation by diaphragm process, recover the iodine on the anode and alkali metal hydroxide on the cathode and return the recovered materials to the above iodination process and hydrolysis process.