Galacto-oligosaccharides (GOS), which can be produced by enzymatic transgalactosylation of lactose with beta-galactosidases, have attracted much attention in recent years because of their prebiotic functions and wide uses in infant formula, infant foods, livestock feed, and pet food industries. In this study, a novel beta-galactosidase-producing Klebsiella oxytoca ZJUH1705, identified by its 16S rRNA sequence (GenBank accession no. MH981243), was isolated. Two beta-galactosidase genes, bga 1 encoding a 2058-bp fragment (GenBank accession no. MH986613) and bga 2 encoding a 3108-bp fragment (GenBank accession no. MN182756), were cloned from K. oxytoca ZJUH1705 and expressed in E. coli. The purified beta-gal 1 and beta-gal 2 had the specific activity of 217.56 U mg(-1) and 57.9 U mg(-1), respectively, at the optimal pH of 7.0. The reaction kinetic parameters K-m, V-max, and K-cat with oNPG as the substrate at 40 degrees C were 5.62 mM, 167.1 mu mol mg(-1) min(-1), and 218.1 s(-1), respectively, for beta-gal 1 and 3.91 mM, 14.6 mu mol mg(-1) min(-1), and 28.9 s(-1), respectively, for beta-gal 2. Although beta-gal 1 had a higher enzyme activity for lactose hydrolysis, only beta-gal 2 had a high transgalactosylation capacity. Using beta-gal 2 with the addition ratio of similar to 2.5 U g(-1) lactose, a high GOS yield of 45.5 +/- 2.3% (w/w(-1)) was obtained from lactose (40% w/w(-1) or 480 g L-1) in a phosphate buffer (100 mM, pH 7.0) at 40 degrees C in 48 h. Thus, the beta-gal 2 from K. oxytoca ZJUH1705 would be a promising biocatalyst for GOS production from lactose.Key Points center dot A novel bacterial beta-galactosidase producer was isolated and identified.center dot beta-Galactosidases were cloned and expressed in heterologous strain and characterized.center dot Both enzymes have hydrolytic activity but only one have transglycosilation activity.center dot The developed process with beta-gal 2 could provide an alternative for GOS production.