The present invention relates to an improved process for the preparation of high grade synthetic rutile from ilmenite with pig iron as a by-product. The process comprises subjecting ilmenite to reduction with coal, cooling and removing unreacted coal to obtain a product having 80-95% metallization, smelting the metallized ilmenite mixed with less than 10% carbon (w/w) in a transferred arc plasma using arc current, under flow of inert gas for a fixed time. The metal is then separated as pig iron and TiO2 as slag, the slag ground followed by oxidation at high temperature in the presence of an oxidizing gas, the oxidized product being leached with dilute HCl followed by filtration, washing and drying to obtain synthetic rutile.