Agglomeration is the most common phenomenon in synthesizing nanopowders, which strictly reduces the quality of the products. In the present study, a non-agglomerated iron oxide nanopowder was synthesized via direct oxidation method from metallic iron by hydrogen peroxide. The H2S gas sensing of the nanoparticles was also investigated. The products were evaluated via XRD, TEM, XPS and BET techniques. The results showed that a precisely size-controlled iron oxide with an average particle size of 12 nm was obtained. XRD results confirmed the amorphous nature of the particles. The produced nanoparticles had a high surface area of about 92 m2/g. The powders were dispersed in water for more than three months without sedimentation. XPS results showed the existence of Fe3+ in the samples which confirms the formation of the Fe2O3 phase. The finding showed that the produced samples exhibited a high H2S detection ability. The detection limit was about 100 ppb, and the greatest sensitivity was attained at 100 ppm concentration of H2S. Additionally, the sensor's behavior in the presence of other gases shows that it has high H2S selectivity. This synthesis method introduces a new approach for producing non-agglomerated oxide ceramics with nanoscale via a mild oxidizing media from metal powders.