The transport and magnetic properties of nickel (Ni) nanoparticles in the range 9-70 nm having a surface oxide layer of Ni or zirconium (Zr) have been studied. The oxide-encapsulated Ni has been prepared by chemical reduction of nickel and zirconium salts in an aqueous medium with sodium borohydride as a reducing agent. Both X-ray diffraction and transmission electron microscopy studies indicate the presence of amorphous Ni-O in the native state. With the addition of Zr-O, Ni crystalline peaks become strong, and amorphous Ni-O peaks become weak. The absolute resistivity decreases first (up to x≤0.10 where x is the molar concentration of Zr salt in the starting solution), and then increases with increasing addition of Zr-O (x≥0.15). The saturation magnetization increases with the addition of Zr-O up to x=0.05 and then decreases. These results are in agreement with the microstructural results, which show that addition of Zr-O promotes Ni formation by suppressing the Ni-O shell. The resistivity drops initially (up to x≤0.10) due to better interparticle connectivity, whereas for x≥0.10, the resistivity increases as the interparticle connectivity is reduced, due to Zr-O encapsulation. The low field magnetization shows a superparamagnetic behavior, observed in nanoscale structures.