PURPOSE: To obtain rare earth-cobalt alloy powder in a short reduction reaction time by bringing a mixture composed of an oxide of a rare earth element and metallic cobalt into contact with gaseous calcium.

CONSTITUTION: A rare earth element compd. such as Sm2CO3 as a compsn. for carrying a rare earth element and powder of metallic cobalt as a component for carrying cobalt are mixed. The powder mixture thereof is brought into contact with gaseous calcium by a suitable method to cause a reduction reaction. The excess calcium is removed from the resulting product to the extent of giving no influence on a magnetic characteristic and rare earth-cobalt alloy powder having a desired compsn. is obtd. A transition metal element except cobalt is incorporated in the form of metal into the mixed raw material powder if necessary. The reaction time is reduced and the amt. of the reducing agent to be used is decreased by the above-mentioned method.