A strain of Enterobacter cloacae B5 producing beta-galactosidase with transglycosylation activity was isolated from the soil. Its freeze-thawed cells synthesized gal acto-oligosaccharides with a high yield of 55% from 275 g/L lactose at 50 degrees C for 12 h. A novel beta-galactosidase capable of glycosyl transfer was purified from this strain. It was a homotetramer with molecular mass of about 442 kDa. The optimal pH and temperature for hydrolysis activity on o-nitrophenyl-beta-D-galactopyranoside (oNPGal) were 6.5-10.5 and 35 C, respectively. The enzyme showed a wide range of acceptor specificity for transglycosylation and catalyzed glycosyl transfer from oNPGal to various chemicals such as galactose, glucose, fructose, arabinose, mannose, sorbose, rhamnose, xylose, cellobiose, sucrose, trehalose, melibiose, inositol, mannitol, sorbitol and salicin, resulting in novel saccharide yields ranging from 0.8% to 23.5%. A gene encoding the enzyme was cloned and the recombinant enzyme from Escherichia coli had similar transglycosylation activity to the natural enzyme. (C) 2008 Elsevier Ltd. All rights reserved.