Vascular grafts are devices intended to replace compromised arteries in the body and grafts made of polyethylene terephthalate (PET) fabric have been used mainly for synthetic grafting procedures involving medium to large diameter vascular grafts. Though porosity of the graft permits tissue in-growth, it would lead to bleeding through the graft walls immediately after implantation. So it is essential to seal the pores either by preclotting with patient's own blood or by other sealing materials prior to implantation in order to prevent blood leakage through the graft wall. Biodegradable hydrogel materials are ideal candidates for this purpose. Apart from sealing the pores, they offer biocompatible and low-thrombogenic surfaces when coated on vascular graft. In the present study, a biodegradable hydrogel, derived from oxidized alginate and gelatin, has been deposited on PET grafts by dip coating and were characterized for its efficacy on sealing the pores of the graft. Water permeability in the static and pulsatile conditions, burst strength, in vitro cell culture cytotoxicity, hemocompatibility, and endothelial cell adhesion and proliferation of the coated grafts were investigated. Results showed that the alginate dialdehyde cross-linked gelatin hydrogel was nontoxic, hemocompatible, and was efficient in sealing the pores of the graft. Blood perfusion study showed that when hydrogel-coated grafts were exposed to blood for 30 min, they showed little affinity toward platelets or leukocytes. Hemolytic potential of PET was significantly reduced when it was coated with hydrogel. Improved adhesion and proliferation of endothelial cells were observed when PET grafts were coated with hydrogel. Results also showed that coating with hydrogel did not affect the burst strength of the PET graft.