A new method of utilization of original bio-oil was developed in this paper. The procedure chosen was based on the fractionation of the bio-oils with water into water soluble and insoluble fractions. After oxidizing the aldehydes to acids by hydrogen peroxide, water soluble fraction was used to obtain upgraded bio-oil (light oil) with ethanol through reactive rectification. The yield of light oil was 20.6% (account to original bio-oil) and the components of upgraded bio-oil were characterized by HPLC and FT-IR. The analysis showed that the main components were ethyl acetate, ethyl formate, methyl acetate and methyl formate. Using water insoluble fractions as starting materials in synthesis of novolac resins was also studied. The water insoluble fraction was used as a substitute of phenol at different ratio to prepare novolac resins. Main properties of obtained resin such as cure time and soft point were characterized. The novolac property of resins was determined by DSC. (C) 2010 Elsevier Ltd. All rights reserved.