The consolidation of Sm₂Fe₁₇N₃ powder was examined by pulsed current sintering below its decomposition temperature. Although decomposition of the powder was not observed, its coercivity decreased dramatically. Annealed powder was observed by transmission electron microscopy in order to clarify the mechanism for the reduction in the coercivity. In powder annealed at 673 K, a thin nanostructured layer was formed around the Sm₂Fe₁₇N₃ particles. The crystal structure of this thin layer had a crystallographic symmetry higher than that of the Sm₂Fe₁₇N₃ structure. This higher symmetry layer appeared to have a smaller magnetic anisotropic energy, allowing it to act as a nucleation site for a reverse magnetic domain, when a reverse magnetic field is applied to the magnetized powder. Therefore, the coercivity of the powder decreased below its decomposition temperature. Irregular growth of the thin layer was observed in powder annealed above the decomposition temperature, and the grown region was confirmed to be an iron phase.