A micro-aerobic side-stream reactor (MSSR) was inserted in returned sludge line of a membrane bioreactor (MBR) for sludge reduction. Three MSSR coupled MBRs (M-MBRs) and an anoxic/oxic MBR (AO-MBR) were operated in parallel to investigate effects of micro-aerobic condition and hydraulic retention time (HRT) of MSSR (HRTM) on process performance. M-MBRs and AO-MBR were equally effective in COD and NH4-N removal. Rising HRTM from 3.3 to 6.7 h increased sludge reduction from 10.8% to 47.5%, and promoted dissolved organic matters release and utilization by enriching hydrolytic, fermentative and predatory bacteria. M-MBR at HRTM of 3.3 h obtained the highest nitrogen removal, and enriched denitrifiers (Thauera and Hyphomicrobium) in the MSSR. The highest relative abundance of polyphosphate-accumulating organisms was observed in M-MBR at HRTM of 5.0 h, which achieved the highest phosphorus removal. Prolonging HRTM to 6.7 h improved sludge dewaterability by enriching floc-formation bacteria (Nannocystis) and inhibiting filamentous bacteria (Candidatus_Alysiosphaera).