An upflow anaerobic reactor operated with a sequencing batch mode to enhance high rate digestion of raw and thermally disintegrated waste activated sludge with formation of granules. The gas production rate doubled when disintegrated waste activated sludge was introduced. Gradual granulation took place and the dispersed particles become coarse granulation as the operation continued. The granular sludge showed relatively higher specific methanogenic activity than the dispersed sludge. Bacterial morphology by a scanning electron microscope showed diversity of bacteria such as filamentous, rod and spherical shape in the section of granules. Filamentous bacteria, which might support the frame of a granule, were observed as long chains at the outer surface. Meanwhile, rod and spherical bacteria, which might play a role in the initial stage of granule formation, were observed from the inner surface of the granule. High rate digestion of sludge along with efficient liquid-solids separation was achieved due mainly to development of sludge granules within the upflow reactor.