We report a novel method to prepare monodisperse and superpara magnetic iron oxide nano particles (magnetite and maghemite) using low cost and non-toxic precursors under low temperature hydrothermal conditions. In this method, FeCl3 and FeCl2.4H2O were used as iron sources and NH4OH was added for controlling the pH value and oleic acid as dispersing agent. The synthesized particles are characterized by XRD, SEM and TEM. Their magnetic properties are studied by VSM at room temperature. The TEM results showed that the nanoparticles are monodisperse with an average size of 7-11 nm and 12-16 nm in diameter for maghemite and magnetite nanoparticles respectively. The nanoparticles are proved to be very close to super-paramagnetic with a saturation magnetization of 40.1 emu/gm and 44.75 emu/gm for magnetite and maghemite respectively. The samples exhibit very low retentivity and coercivity. The synthesized particles are coated with PEG 6000 and PEG 20,000 as a possible route to produce high magnetization polymer-coated nanoparticles for use in biomedical applications. The SEM results ascertain the surface morphology and the PEG coating. The magnetic properties of the coated nanoparticles are also studied at room temperature using VSM and they show slight increase in the saturation magnetization values. The present study demonstrates the nanoparticles formation and the controlled agglomeration by varying the polymer concentration.