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To determine the largest size of liposomes that can retain stealth behavior conferred by poly(ethylene glycol)-DSPE, neutral liposomes were studied in rabbits for their circulation and distribution. Five sizes (136.2, 165.5, 209.2, 275 and 318 nm) of liposomes (DSPC, Cholesterol, PEG-DSPE and α-tocopherol, 90:80:4.5:3.9 molar ratio) were made by extrusion technique and radiolabeled with technetium-99m (Tc-99m) to follow their distribution through 24 h. Although all liposomes showed prolonged circulation in blood, the amount still in circulation at 24 h was dependent on their size. Radioactivity accumulation in spleen progressively increased with increase in size of the liposomes. In the size range of ∼160–220 nm, liver uptake was minimum, spleen uptake was moderate while the amount of circulating liposomes was maximum. Gamma camera scintigraphy corroborated the distribution pattern of liposomes on necropsy. Images within 1 h showed high blood pool activities for liposomes of all sizes. However, at 24 h, the blood pool activity was diminished for 275 nm and negligible for 308 nm liposomes; the smaller sized liposomes (136.2–209.2 nm) continued to show high blood pool activity. The amounts of radioactivity still circulating at 24 h were 46.4, 50.4, 46.8, 36.2 and 14.5% for 136.2, 165.5, 209.2, 275 and 318 nm liposomes, respectively. Corresponding circulation T1/2s were 21.7, 26.5, 24.9, 18.7 and 8.9 h, respectively. Thus, the optimum size of PEG-liposomes for prolonged circulation in rabbits is 160–220 nm. Beyond this range, the stealth property of PEG-liposomes is significantly compromised and the distribution is characterized by high RES accumulation.