3,6-anhydro-alpha-L-galactose (L-AHG) is a commercially unavailable monosaccharide with high therapeutic value, in particular, anti-viral. L-AHG is a selective inhibitor of HIV reverse transcriptase. Till date, the synthesis of LAHG remains an intricate process and there is a need for a simpler approach producing L-AHG industrially. Herein, we report an agar-hydrolyzing Arthrobacter spp. AG-1 isolated from Gulf of Mannar, Tamil Nadu which completely converts agar to L-AHG with their extracellular agarase in one pot. The optimal temperature and pH for the maximal activity of Arthrobacter spp. strain AG-1 were 45 degrees C and pH 7 respectively. We purified and characterized the 44 kDa agarase involved in the glycoside hydrolysis. The V-max, K-m, and value of the agarase were determined as 1.7848 x 10(-2) U/mg, 0.01825 +/- 0.001 M and 0.1748 +/- 0.006 S-1 respectively. Presence of L-AHG was confirmed by TLC. Detailed ESI-MS revealed the presence of a relatively higher abundance of LAHG and chemical fingerprinting analysis by FT-IR, GC-MS and CD confirmed that the end product as L-AHG. Additionally, L-AHG exhibited notable anti-inflammatory and antibacterial activity. The whole cell biocatalytic system is predicted as a starting point for a more detailed study on Arthrobacter spp. extracellular agarase.