In the reduction of nitrogen monoxide with propane, the Pd-Y zeolite catalyst with a high palladium content exhibited excellent activity and selectivity at low temperatures of 573-873 K. The palladium species in the zeolite crystals was characterized by an EXAFS examination and determined to be small clusters consisting of 10-17 metallic atoms under the operating conditions. It was concluded from the results of temperature-programmed and transient experiments that in the main pathway of reaction, propane was decomposed into hydrogen in the gas phase and carbonaceous species on the surface of reduced palladium clusters, the latter of which react with nitrogen monoxide in the gas phase to produce nitrogen and carbon dioxide.