Two-phase nanocomposite films consisting of metallic Co nanoparticles below 50 nm diameter in a perovskite matrix were grown by pulsed laser deposition onto (LaAlO3)0.3(Sr2AlTaO6)0.7 (LSAT) and silicon substrates from a target of SrGa0.73Co0.27O3. The particles made up about 6% by volume of the film and were present within the film and at the substrate interface. The saturation magnetization of the film was up to 85 emu cm(-3) at 80 nm thickness and the Faraday rotation (FR) tracked the out-of-plane hysteresis loop, reaching 3000 deg cm(-1) at 10 kOe for 1550 nm wavelength. The magneto-optical figure of merit defined as FR divided by optical absorption was 0.04-0.06 deg dB(-1) due to the high optical absorption of the Co particles.