In this paper, rapid solidified Mg-4.3Zn-0.7Y (at.%) alloy powders were prepared using an inert gas atomizer, followed by a severe plastic deformation technique of high pressure torsion (HPT) for consolidation of the powders. The gas atomized powders were almost spherical in shape, and grain size was as fine as less than $5;{mu}m$ due to rapid solidification. Plastic deformation responses during HPT were simulated using the finite element method, which shows in good agreement with the analytical solutions of a strain expression in torsion. Varying the HPT processing temperature from ambient to 473 K, the behavior of powder consolidation, matrix microstructural evolution and mechanical properties of the compacts was investigated. The gas atomized powders were deformed plastically as well as fully densified, resulting in effective grain size refinements and enhanced microhardness values.