To produce alloy powders with only Sm$_2$Fe$_{17}$ single phase by reduction-diffusion (R-D) method, the effect of excess samarium oxide on the preparation of Sm-Fe alloy powder during R-D heat treatment was studied. The quantity of samarium oxide was varied from 5% to 50% whereas iron and calcium were taken 0% and 200% in excess of chemical equivalent, respectively. The pellet type mixture of samarium, iron powders and calcium granulars was subjected to heat treatment at 1100$^{circ}C$ for 5 hours. The R-D treated pellet was moved into deionized water and agitated to separate Sm-Fe alloy powders. After washing them in deionized water several times, the powders were washed with acetic acid to remove the undesired reaction products such as CaO. By these washing and acid cleaning treatment, only 0.03 wt% calcium remained in Sm-Fe alloy powders. It was also confirmed that the content of unreacted $alpha$-Fe in Sm$_2$Fe$_{17}$ matrix gradually decreased as the percentage of samarium oxide is increased. However, there was no significant change above 40% excess samarium oxide.