In the present investigation a novel multi-stage external loop airlift reactor with hydro-dynamically induced continuous bubble generation, breakup and regeneration has been proposed. The system has been designed to operate with relatively large sized bubbles, so that interfacial circulation can be induced in the liquid-bubble interfaces and faster transfer of components can take place by turbulent diffusion through the interface of the bubbles and also due to the physical rupture and reformation of the bubbles. The system was also designed to operate in three stages operating in series so that in each stage completely deaerated liquid could be brought in contact with freshly generated bubbles. Detailed studies on the gas holdup and liquid circulation velocity have been carried out with respect to various values of superficial gas as well as liquid velocities. The gas holdup of the proposed multi-stage system is 45% higher than the single stage system, which results in better mass transfer characteristics. Empirical correlations describing the performance of the proposed reactor have been presented in this paper. (c) 2006 Elsevier Ltd. All rights reserved.