Density functional studies of CO oxidation by FenOm (n = 1, 2 and m = 1-3) clusters are carried out. A new reaction path where a CO molecule adsorbed on to a surface Fe site breaks one FeO bond and a subsequent CO molecule is oxidized by the less coordinated O atom, proceeds in a barrier less manner. An attachment of CO and O-2 to this active Fe site results in the formation of CO2 via a CO3 intermediate. The role of charge transfer and the nature of intermediate states in reduced sizes are highlighted. (C) 2003 Elsevier B.V. All rights reserved.