Permalloy films 5 to about 40 nm thick were deposited on MgO(001) substrates at 230 degrees C by biased de plasma sputtering at 2.7 kV in pure Ar gas using a Ni0.77Fe0.23 target. A bias voltage V-s between 0 and -150 V was applied to the substrate during deposition. The initial growth structure and physical properties of epitaxial films were investigated by x-ray photoelectron spectroscopy, reflection high energy electron diffraction, transmission electron microscopy, and by measuring electrical and magnetic properties. Epitaxial FCC-Ni1-xFex (Permalloy) films, where x is scattered between 0.36 and 0.32, could be prepared with NiFe(001)[010]\\MgO(001)[010] in full thickness independently of V-s. However, films with lower electrical resistivity and with higher saturation magnetization having an atomically smooth surface could be prepared at V-s = -90 V. The film was composed of discrete islands of at least 5 nm thickness at an initial growth stage. Misfit dislocations were already formed even in isolated islands along the MgO 100 direction with lattice expansion along the same direction. The practical lattice misfit f computed from transmission electron diffraction patterns gradually increased reaching the theoretical value with an increase in thickness up to 17 nm. Such anf dependence on thickness could be reasonably simulated on the basis of van der Merwe's model. Thus the epitaxial Permalloy film grows forming misfit dislocations as well as expanding the lattice at the MgO interface to keep a balance between the energies of strain and dislocation. Under the application of V-s, the initial discrete island structure on the MgO substrate might be modified not only by accelerated incoming ions but also by charged ions on the insulating substrate.