Much attention has been paid to reducing of excess sludge production in the activated sludge process, due to high treatment and disposal costs. In this study, an innovative approach for achieving sludge reduction, which featured recirculating a portion of the activated sludge through a side-stream sludge treatment unit, was applied by adding free ammonia (FA, i.e., NH3). The results showed that sludge production was significantly reduced after FA treatment, while the sludge production rate was decreased by 21%. Meanwhile, the treatment performance and the sludge properties were not negatively affected by the FA-treated sludge during the experiment (e.g. effluent quality, nitrification activity, sludge settleability). Economic analysis also indicated that the FA treatment approach would be an economically favorable technology, and the sludge treatment costs could be cut by 16.6%.