We purified an extracellular thermostable beta-galactosidase of Saccharopolyspora rectivirgula strain V2-2, a thermophilic actinomycete, to homogeneity and characterized it to be a monomeric enzyme with a relative molecular mass of 145000 and S degrees(20,w) of 7.1 S. In addition to the hydrolytic activity of 1-O-substituted beta-D-galactopyranosides such as lactose [a Michaelis constant K-m = 0.75 mM and molecular activity (k(cat)) = 63.1 S-1 at pH 7.2 and 55 degrees C] and p-nitrophenyl beta-galactopyranoside (K-m = 0.04 mM and k(cat) = 55.8 S-1), the enzyme had a high transgalactosylation activity. The enzyme reacted with 1.75 M lactose at 70 degrees C and pH 7.0 for 22 h to yield oligosaccharides in a maximum yield (other than lactose) of 41% (w/w). A general structure for the major transgalactosylic products could be expressed as (Gal)(n)-Glc, where n is 1, 2, 3, and 4 with a glucose at a reducing terminal. These oligosaccharides could selectively promote the growth of the genus Bifidobacterium found in human intestines. S. rectivirgula beta-galactosidase was stable at pH 7.2 up to 60 degrees C (for 4 h in the presence of 10 mu M MnCl2) or 70 degrees C (for 22 h in the presence of 1.75 M lactose and 10 mu M MnCl2). Thus the enzyme is applicable to an immobilized enzyme system at high temperatures (60 degrees C<) for efficient production of the oligosaccharides from lactose.