Due to high pollution load and colour contributing substances, pulp and paper mill effluents cause serious aquatic and soil pollution. A lignin-degrading bacterial strain capable of decolourising Azure-B dye was identified as lignin peroxidase (LiP) producing strain LD-5. The strain was isolated from pulp and paper mill effluent contaminated site. Biochemical and 16S rDNA gene sequence analysis suggested that strain LD-5 belonged to the Serratia liquefaciens. The strain LD-5 effectively reduced pollution parameters (colour 72%, lignin 58%, COD 85% and phenol 95%) of real effluent after 144h of treatment at 30°C, pH 7.6 and 120rpm. Extracellular LiP produced by S. liquefaciens during effluent decolourisation was purified to homogeneity using ammonium sulfate (AMS) precipitation and DEAE cellulose column chromatography. The molecular weight of the purified lignin peroxidase was estimated to be ∼28kDa. Optimum pH and temperature for purified lignin peroxidase activity were determined as pH 6.0 and 40°C, respectively. Detoxified effluent was evaluated for residual toxicity by alkaline single cell (comet) gel electrophoresis (SCGE) assay using Saccharomyces cerevisiae MTCC 36 as model organism. The toxicity reduction to treated effluent was 49.4%. These findings suggest significant potential of S. liquefaciens for bioremediation of pulp and paper mill effluent.