A study of recently proposed chemical method of atomic iodine production in the Chemical Oxygen-Iodine Laser (COIL) was performed. The process using gaseous reactants is based on the fast reaction of hydrogen iodide with chemically produced atomic chlorine. In the absence of singlet oxygen, the high yield of atomic iodine was attained (80 to 100 %). In the flow of singlet oxygen, the gain of 0.32 % cm -1 on 3-4 transition in iodine atom was achieved. It was found that both the rate of atomic iodine generation and gain depend substantially on mixing conditions of reacting gases. In laser experiments, effects of ratio of reactants, and their dilution by nitrogen on the laser output power were studied. The output power of 285 W was attained at chlorine flow rate of 27 mmol s -1 corresponding to chemical efficiency of 11.7 %. It was the first time when gain and laser output power were achieved in the COIL with atomic iodine generated by the proposed method.