Gracilaria verrucosa (Huds.) Papenf. was cultured on ropes in close proximity to the caged fish aquaculture of Lateolabrax japonicus in Xiangshan Harbor, Zhejiang Province, China during the summer of 2006. Prior to the start of the integrated multi-trophic aquaculture (IMTA) of Gracilaria with Lateolabrax, water quality was monitored at 220 sampling points ranging from a minimum of 20 to a maximum of 150 m from the fish pens. Levels of dissolved inorganic nitrogen (NO2-N, NH4-N and NO3-N), phosphate (PO4-P) and chemical oxygen demand (COD) in the water column were 0.053 mg L-1, 0.36 mg L-1, 0.64 mg L-1, 0.086 mg L-1 and 1.59 mg L-1, respectively. The index of eutrophication reached 32.00. After 45-days of cultivation of Gracilaria near the fish cages, the average concentrations of PO4-P, NO2-N, NH4-N and NO3-N were reduced by 22%-58%, 24%-48%, 22%-61% and 24%-47%, respectively. In addition to the reductions of nitrogen and phosphorus, there was a 28% increase in the concentration of dissolved oxygen and a 30% increase in the transparency of seawater in areas where Gracilaria was cultured with Lateolabrax. There was also a 49% reduction in chlorophyll a in these areas. Biomass of Gracilaria after 45 days of culture in association with the fish aquaculture was (7.80±1.65) kg m-1 and Gracilaria had a maximum SGR of 13.2% d-1. Nitrogen content in dry thalli harvested from the fish cages averaged 4.80%. According to the nitrogen budgets of L. japonicus and G. verrucosa in open mariculture system, 4.7 kg wet wt cultivated G. verrucosa are needed to balance the nitrogen discharged by 1 kg harvested L. japonicus. The integration of the Gracilaria culture with finfish aquaculture in an integrated multi-trophic aquaculture (IMTA) system is an effective practice for nutrient bioremediation of coastal waters that will also result in economic diversification by producing another value-added marine crop.