The present invention relates to a method of preparing biocompatible iron oxide nanoparticles by coating iron oxide nanoparticles having improved magnetism via annealing treatment using salt particles with a hydrophilic material and to a magnetic resonance imaging (MRI) contrast agent including the iron oxide nanoparticles prepared thereby. Among hydrophilic materials, carboxymethyl dextran (CM-dextran) is the most efficient in terms of stabilizing the annealed iron oxide nanoparticles and exhibiting contrast effects.