The management and optimization of the aqueous phase are the major challenges that hinder the promotion of hydrothermal liquefaction (HTL) technology on a commercial scale. Recently, many studies reported about the accumulation of the N-content in the bio-crude with continuous recycling of the aqueous phase from high protein-containing biomass. In the present study, sewage sludge was processed at 350 °C in an autoclave. The produced aqueous phase was treated with activated carbon, and its subsequent recycling effect on the properties of the bio-crude and aqueous phase was investigated. By contacting the aqueous phase with activated carbon, 38–43% of the total nitrogen was removed from the aqueous phase. After applying the treated aqueous phase recycling, the energy recovery of the bio-crude increased from 50 to 61% after three rounds of recycling. From overall carbon/nitrogen recoveries, 50 to 56% of the carbon was transferred to the bio-crude phase and more than 50% of the nitrogen remained in the aqueous phase. The aqueous phase contained mostly of N&O-heterocyclic compounds, small chain organic acids, and amides. ICP-AES analysis showed that more than 80% of the inorganic elements were concentrated into the solid phase.