An inline thickener-MBR (itMBR), consisting of a sludge thickening tank (STT) installed with inclined tubes followed by an aerobic sludge production tank (SPT) with submerged membranes, was developed to achieve compact and energy efficient organic carbon treatment and sludge production from municipal wastewater. Through a long term operation treating actual municipal wastewater, the pilot itMBR achieved high and stable COD removal under short hydraulic retention times (HRTs) of 1–2h in SPT. By the function of STT, the mixed liquor suspended solids (MLSS) concentration in SPT was kept at a moderate range (5.3–7.3g/L) even under high volumetric organic loading rates (2.9–6.1kg COD/m3d). Return sludge rate as low as 30% of the influent flow rate was shown enough for maintaining the moderate MLSS concentration in SPT. Suppression of nitrification, for energy saving and ammonia recovery, could be achieved at 40% ammonia removal. In addition, dense excess sludge (21g/L) was consistently recovered from STT throughout the operation. Observed sludge yield was 0.28kg MLSS/kg CODremoved, which would be further improved by optimizing operational conditions.