Hydrothermal carbonization (HTC) of sawdust for producing hydrochar was optimized using response surface methodology (RSM). After optimization, the combustion behaviour and other relevant fuel properties of hydrochar that was obtained at the optimized conditions were studied. Additionally, the aqueous phase obtained at the optimized conditions was recycled as the reaction medium for producing hydrochar and the influence of the aqueous phase recycling on the hydrochar yield and properties was evaluated. The results indicated that the highest hydrochar yield of 84.23 wt.% under the predicted optimum conditions of temperature of 162.23°C, 2.51 h, feedstock loading of 10.71 wt.%, and catalyst loading of 7.99 wt.%. Furthermore, it was found that the use of recycled aqueous phase as the reaction medium led to an increase in the hydrochar yield, higher heating value (HHV), and energy yield, and difference in combustion behaviour was minor. Overall, this study filled the gap in HTC literature regarding the effect of catalyst on hydrochar production and provided a practical solution to treat the aqueous phase.