Provided herein is an impurity of laquinimod, N-ethyl-N-phenyl-1,2-dihydro-4-hydroxy-1-methyl-2-oxoquinoline-3-carboxamide (deschloro laquinimod impurity), and process for preparation and isolation thereof. Provided further herein is a highly pure laquinimod or a pharmaceutically acceptable salt thereof substantially free of deschloro laquinimod impurity, processes for the preparation thereof, and pharmaceutical compositions comprising highly pure laquinimod or a pharmaceutically acceptable salt thereof substantially free of deschloro laquinimod impurity.
