A biosensor utilizing bio-functionalized magnetic nanoparticles is provided. An external magnetic field is applied to a suspension of magnetic nanoparticles. A linearly polarized incident light is applied to the suspension of magnetic nanoparticles. A photocurrent from polarized light scattering by bio-functionalized magnetic nanoparticles in liquid is detected. The magneto-optic sensing technique is applied to a micro-fluidic channel for rapid and sensitive detection with a small sample amount, and subsequent magnetic separation for detoxification. This technique is used for the detection of Brownian relaxation with time sweep as well as frequency sweep. The magneto-optical sensor enables rapidly detecting changes in local dynamic properties of the magnetic nanoparticles in liquids and magnetic modulation of ferromagnetic particles in liquid provides increased signal sensitivity.