Rare earth (RE)-doped silica-based optical fibers with transparent glass ceramic (TGC) core was fabricated through the well-known modified chemical vapor deposition (MCVD) process without going through the commonly used stage of postceramming. The main characteristics of the RE-doped oxide nanoparticles namely, their density and mean diameter in the fibers are dictated by the concentration of alkaline-earth element used as phase-separating agent. Magnesium and erbium co-doped fibers were fabricated. Optical transmission in term of loss due to scattering as well as some spectroscopic characteristics of the erbium ions was studied. For low Mg content, nano-scale particles could be grown with and relatively low scattering losses were obtained, whereas large Mg-content causes the growth of larger particles resulting in much higher loss. However, in the latter case, certain interesting alteration of the spectroscopic properties of the erbium ions were observed. These initial studies should be useful in incorporating new doped materials to realize active optical fibers for constructing lasers and amplifiers.