Due to resource depletion and environmental concerns regarding battery disposal, it is becoming more essential to recycle valuable metals from wasted lithium-ion batteries (LIBs). A novel approach is proposed in this study for the efficient bifunctional photocatalysis of LIBs components by integrating AgNPs in an environmentally sustainable manner via a sustainable hydrothermal process. The HRTEM and image mapping reveal a carbon matrix (C/Li3Fe5O8/Ag) with a dispersed arrangement of AgNPs (5–10 wt%). By acting as a reducing agent, graphite plays a crucial role in the transformation of Ag+ ions into AgNPs. The homogenous distribution of Ag NPs observed in the high-resolution TEM images further supports the role of graphite in the modification and decoration of Ag NPs onto the surface of the extracted spent cathode sample. The detection of a spot matching the (200) plane of Ag in the selected area electron diffraction (SAED) measurements confirms the successful formation of AgNPs. Additionally, the presence of a ring corresponding to the (110) plane of graphite in the SAED measurements suggests the coexistence of graphite with AgNPs in the composite heterostructures. The nitrogen adsorption isotherm analysis was conducted to explore the physical properties of the AgNPs@LIBs nanocomposite, providing valuable insights into its pore size distribution and Brunauer–Emmett–Teller (BET) surface area. The nanocomposites exhibited paramagnetic behavior, as revealed by vibrational sample magnetometer (VSM) measurements, with saturation magnetization values ranging from 76.3 × 10−3 to 36.13 × 10−3 emu/g. The study involved the photodegradation of oxytetracycline (OTC), a representative pharmaceutical pollutant, along with an investigation into the potential of Cr(VI) reduction. Under optimal component ratios, a significant improvement in pollutant removal was achieved under UV radiation, reaching up to 75 % for OTC and 80 % for Cr(VI), highlighting the efficiency of the process.