A chloride functionalized carbon nanotube sponge (CNS) was produced using the aerosol-assisted chemical vapor deposition method. The CNS was grown using 1,2-dichlorobenzene and ferrocene as precursors. The chloride functionalized CNS was characterized by scanning electron microscopy, high-resolution transmission electron microscopy, Raman spectroscopy, X-ray photoelectron spectroscopy (XPS), thermogravimetric analysis, Fourier transform infrared spectroscopy, X-ray diffraction, vibrating sample magnetometry and cyclic voltammetry (CV). The CNS is formed by entangled multiwalled carbon nanotubes (MWCNTs) of 32 nm diameter with Fe3C nanowires inside. FTIR and XPS demonstrated that the surface of MWCNTs hosts functional groups such as trichloromethyl (CCl3), chloride (C–Cl), carbonyl (CO), carboxylic (COOH), and phenolic (C–O). Magnetic measurements at 300 K revealed a saturation magnetization of 192.7 emu/g and a coercive field of 502 Oe. CV studies show that the iron species and 3.2% oxygen over the surface of CNS leads to a quasi-reversible redox process and hydroquinone/quinone redox process, respectively. High charge capacity is correlated with chloride functionalities. The CNS could be used as a magnetic oil-spill cleaner, anodes in lithium-ion batteries, or specific magnetic-catalyst. Density functional theory calculations reveal the structural stability and charge transfer over chloride functional groups anchored to the surface of MWCNTs.