Excess sludge generated during the biological treatment of wastewater is returned to the biochemical tank after being lysed, which is considered to be a feasible strategy for reducing sludge. In this study, an in-situ sludge reduction technology combining sludge lysed based on thermophilic bacterial community (LTBC) and anaerobic-anoxic-oxic (AAO) process (i.e., LTBC-AAO process) was proposed for the first time and the sludge reduction efficiency of the LTBC-AAO process was evaluated. In LTBC reactor, the average removal efficiency of volatile suspended solids of sludge was 52.1 ± 3.2 %. Thermophilic bacteria involved in sludge lysis included Thermus, Fervidobacterium and Caldanaerobacter with relative abundances of 51.5 %, 20.3 % and 8.72 %, respectively. The excess sludge of LTBC-AAO was reduced by 64.7 % compared with that of conventional AAO. The COD removal efficiencies of LTBC-AAO and AAO were 93.4 ± 1.8 % and 93.1 ± 2.1 %, respectively, and there was no significant difference. The TN removal efficiency of LTBC-AAO was 65.7 ± 4.2 %, which was 10 % higher than that of AAO (55.7 ± 3.2 %). Furthermore, 65.7 % substrate in lysed sludge supernatant was readily biodegradable, and the denitrification rate of these substrates as carbon source was 6.33 mg N/g VSS-h. Microbial community structure analysis revealed increased microbial diversity of activated sludge due to lysed sludge reflux, with enrichment of denitrification-related species Delftia and Acinetobacter in LTBC-AAO contributing to the improvement in nitrogen removal efficiency. These findings suggest that the LTBC-AAO process is a promising technology for sludge reduction and nutrient removal in municipal wastewater treatment plants.