Using a one-step procedure we have prepared magnetic fluids comprising of polyelectrolyte stabilized magnetite nanoparticles. These nanocomposites are comprised of linear, chain-like assemblies of magnetic nanoparticles, which can be aligned in parallel arrays by an external magnetic field. We have shown the potential use of these materials as contrast agents by measuring their MR response in live rats. The new magnetic fluids have demonstrated good biocompatibility and potential for in vivo MRI diagnostics.