Permeabilized microbial cells can be used as a crude enzyme preparation for industrial applications. Immobilization and process recycling can compensate for the low specific activity of this preparation. For biomass immobilization, the common support is alginate beads; however, its low surface area and the low biomass concentration limit the activity. We here describe a biocatalyst consisting of a paste of permeabilized Kluyveromyces lactis cells gelled with manganese alginate over a semicircular stainless steel screen. A ratio of wet permeabilized biomass to alginate of 50:4 (wt/ wt) resulted in a paste with maximum immobilized beta-galactosidase activity and maximum gel biomass retention. The biocatalysts retained activity better when stored in milk at 4degreesC than in 50% glycerol. The unused biocatalysts stored in milk did not lose activity after 50 d. However, repeated use of the same biocatalyst 40 times resulted in almost 50% loss of activity. A bioreactor design with two different conditions of operation were tested for milk lactose hydrolysis using this biocatalyst. The bioreactor was operated at 40degreesC as packed bed or with recirculation, similar to a continuous stirred tank reactor. The continuous system with recirculation resulted in 82.9% lactose hydrolysis at a residence time of 285.5 min (flow of 2.0 ml/min), indicating the potential of this system for processing low lactose milk, or even in processing other substrates, using an appropriate biocatalyst.