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La0.7Sr0.2Ni0.2Fe0.8O3 (LSNF), having thermochemical stability, superior ionic and electronic conductivity, and structural flexibility, was investigated as a cathode in SOECs. Exsolution of nanoparticles by reduction of LSNF at elevated temperatures can modulate the characteristics of adsorption, electron transfer, and oxidation states of catalytically active atoms, consequently improving the electrocatalytic activity. The exsolution of NiFe and La2NiO4 nanoparticles to the surface of LSNF under reducing atmosphere (5% H2/N2) was verified at various temperatures (500–800 °C) by IFFT from ETEM, TPR and in situ XRD. The exsolved nanoparticles obtained uniform size distribution (4.2–9.2 nm) and dispersion (1.31 to 0.61 × 104 particle per μm2) depending on the reduction temperature (700–800 °C) and time (0–10 h). The reoxidation of the reduced LSNF (Red-LSNF) was verified by the XRD patterns, indicative of its redox ability, which allows for redistribution of the nanoparticles between the surface and the bulk. TPD-DRIFTS analysis demonstrated that Red-LSNF had superior H2O and CO2 adsorption behavior as compared to unreduced LSNF, which we attributed to the abundance of oxygen vacancy sites and the exsolved NiFe and La2NiO4 nanoparticles. After the reduction of LSNF, the decreases in the oxidation states of the catalytically active ions, Fe and Ni, were characterized on the surface by XPS as well as in the bulk by XANES. The electrochemical performance of the Red-LSNF cell was superior to that of the LSNF cell for electrolysis of H2O, CO2, and H2O/CO2.