Synthesis of functionalized magnetic nanoparticles (NPs) for biomedical applications represents a current challenge. In this paper we present the synthesis and characterization of water-dispersible sugar-coated iron oxide NPs specifically designed as magnetic fluid hyperthermia heat mediators and negative contrast agents for magnetic resonance imaging. In particular, the influence of the inorganic core size was investigated. To this end, iron oxide NPs with average size in the range of 4-35 nm were prepared by thermal decomposition of molecular precursors and then coated with organic ligands bearing a phosphonate group on one side and rhamnose, mannose, or ribose moieties on the other side. In this way a strong anchorage of the organic ligand on the inorganic surface was simply realized by ligand exchange, due to covalent bonding between the Fe(3+) atom and the phosphonate group. These synthesized nanoobjects can be fully dispersed in water forming colloids that are stable over very long periods. Mannose, ribose, and rhamnose were chosen to test the versatility of the method and also because these carbohydrates, in particular rhamnose, which is a substrate of skin lectin, confer targeting properties to the nanosystems. The magnetic, hyperthermal, and relaxometric properties of all the synthesized samples were investigated. Iron oxide NPs of ca. 16-18 nm were found to represent an efficient bifunctional targeting system for theranostic applications, as they have very good transverse relaxivity (three times larger than the best currently available commercial products) and large heat release upon application of radio frequency (RF) electromagnetic radiation with amplitude and frequency close to the human tolerance limit. The results have been rationalized on the basis of the magnetic properties of the investigated samples.