In order to avoid the negative impact of excessive oxygen in the combustion flue gases on the selectivity of most hydrocarbon selective catalytic reduction (HC-SCR) catalysts, an integrated NO(x) adsorption-reduction process has been proposed in this study for the treatment of flue gases under lean burn conditions by decoupling the adsorption and reduction into two different zones. The hypothesis has been validated in a novel internal circulating fluidized bed (ICFB) reactor using Fe/ZSM-5 as the catalyst and propylene as the reducing agent. Effects of propylene to the NO(x) molar ratio, flue gas oxygen concentration, and gas velocity on NO(x) conversion were studied using simulated flue gases. The results showed that increasing the ratio of HC:NO improved the reduction performance of Fe/ZSM-5 in the ICFB reactor. NO(x) conversion decreased with an increasing flue gas flow velocity in the annulus U(A) but increased with an increasing reductant gas flow velocity in the draft tube U(D). The NO(x) adsorption ratio decreased with increasing U(A). In most cases, NO(x) conversion was higher than the adsorption ratio due to the relatively poor adsorption performance of the catalyst. Fe/ZSM-5 showed a promising reduction performance and a strong inhibiting ability on the negative impact of excessive O2 in the ICFB reactor, proving that such an ICFB reactor possessed the ability to overcome the negative impact of excessive O2 in the flue gas using Fe/ZSM-5 as the deNO(x) catalyst.