In this work, we demonstrate a novel synthesis of silver nanoparticles in an aqueous two-phase system. Aqueous two-phase system (ATPS) is a biphasic system consisting of two aqueous phases. They can be formed by the use of polymer-polymer mixture with different hydrophilicity or a polymer-salt mixture. Here, polyethylene glycol and sodium citrate are used as two-phase forming components. Novel synthesis of silver nanoparticles in ATPS is achieved by use of sodium hydroxide as a catalyst. Addition of sodium hydroxide also allows room temperature synthesis of these nanoparticles. Particles with size 60 nm are obtained in the top phase with polyethylene glycol as a primary reducing agent. The bottom phase consisting of citrate-rich solution yielded nanoparticles with size around 30 nm. Change in the particle morphology in different phases is attributed to different reduction mechanism of both the phases.