A hybrid membrane separation activated sludge process was investigated for treatment of residual organic matter in oily wastewater from an automobile engine manufacturing plant. A bench scale experiment was conducted to identify the biodegradability of the residual organic matter in activated sludge reactors at various HRT (equal to SRT), such as 5, 10, 20, 30 days. Removal efficiency of higher than 90% was obtained in terms of SCOD at more than 10 day HRT showing the possibility of biological treatment. Ultrafiltration test was also carried out for the residual organics using cross-flow membrane filtration system at transmembrane pressure (TMP) of 2.0 kg/cm2. The membrane used for this experiment was polysulfone hollow fiber membrane with 30,000 molecular weight cut off. The rejection rate was around 10% in terms of TCOD. This low rejection rate explains that the residual organics in the oil wastewater are soluble and their MWCO size distribution might be less than 30,000. However the combined membrane activated sludge process could maintain significantly high removal efficiency more than 95% for the residual organics in the oily wastewater. The enhancement in organic removal was estimated to be contributed to the increased biomass in the system resulting in the reduction of the organic loading.