Petroleum refinery sludge (PRS) from the biological treatment unit was assessed for the extent of anaerobic biodegradability and pollutant removal through microbial pretreatment utilizing a novel lignin peroxidase (LiP) enzyme-producing bacterial strain, Kosakonia oryziphila to optimize the accelerated solubilization of PRS. K. oryziphila was incubated at different dosages (107, 108 and 109 CFU/mL) for 6 d resulting in maximum soluble chemical oxygen demand (3-fold increment) and volatile fatty acids concentration (2.53-fold increment) against untreated for dosage 108 CFU/mL on 4th d. The maximum LiP activity (20.52 IU/mL) was obtained at optimum conditions. The interactive effect of pretreated substrate and inoculum (S/I) ratios and pH on accumulated biogas yield was optimized using central composite design-response surface methodology in 1 L batch assay. This resulted in significant interaction of independent variables to obtain an optimal condition (S/I = 2.69 and pH = 7.38) for maximum biogas (5.15 L/g VSadded) with 1.56-fold increment against untreated PRS. During process scale-up (20 L study), total petroleum hydrocarbon, oil and grease, and total phenol removals were 56.2%, 62.5% and 88.4% respectively within 50 d of digestion. The digestate phytotoxicity assay revealed a significant reduction in seed-germination inhibition with an increase in seedling and biomass growth suggesting improved decontamination during the digestion process.