In order to optimise nitrogen removal in an aerobic granular sludge system, short- and long-term effects of decreased oxygen concentrations on the reactor performance were studied. Operation at decreased oxygen concentration is required to obtain efficient N-removal and low aeration energy requirement. A short-term oxygen reduction (from 100% to 50%, 40%, 20% or 10% of the saturation concentration) did not influence the acetate uptake rate. A lower aerobic acetate uptake at lower oxygen concentrations was obviously compensated by anoxic acetate uptake. Nitrogen removal was favoured by decreased oxygen concentrations, reaching a value of 34% for the lowest oxygen concentration tested. Long-term effects were evaluated at two oxygen saturation levels (100% and 40%). Nitrogen removal increased from 8% to 45% when the oxygen saturation was reduced to 40%. However, the granules started to disintegrate and biomass washout occurred. It was impossible to obtain stable granular sludge at this decreased oxygen concentration under applied conditions. A solution to obtain stable aerobic granular sludge at low oxygen concentrations is needed in order to make aerobic granular sludge reactors feasible in practice.