The present invention provides a novel process for preparation of Fenspiride. The process comprises reaction of N-(2-phenyiethyl)-2-oxo-6-azaspiro[2.5]octane with alkali cyanate such as potassium cyanate to give Fenspiride (I), which on subsequent treatment with hydrogen chloride in presence of methyl isobutyl ketone as solvent provides Fenspiride hydrochloride of formula (la) of desired purity.