By evaluating microbial kinetic parameters of a pilot sludge blanket reactor (SBR) plant operated with an anaerobic sludge holding tank (SHT), it was found that the sludge production was reduced by 63.5%. According to the theory of uncoupling metabolism, the microorganisms were induced to the initial stage of the endogenous phase in SHT, which resulted in the reduction of yield coefficient. For the determination of optimal retention time in SHT without causing a significant decay of microorganisms, ammonia concentration was monitored with time at specific temperature and mixed liquor suspended solids concentrations. In a long-term (>1 yr) operation of the pilot plant, no deterioration of the effluent water quality was observed. Considering phosphorus removal, an extended sludge retention time of 60–70 days (due to the reduced yield coefficient) did not significantly affect the efficiency relative to typical biological nutrient removal (BNR) processes. According to the findings of this study, anaerobic SHT can be applied for BNR processes with reduced production of sludge, and this will help to minimize environmental and economic problems pertaining to the final disposal of sludge.