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This research focuses on the production process of soft magnetic composites in the form of 3D bulk compacts made from insulated powder particles using different milling parameters, aiming to enhance their magnetic properties and to study an innovative method of the powder surface "smoothing" technique. A structure analysis using scanning electron microscopy (SEM), EDS, and optical microscopy is also included. We found out that the samples made by the innovative method have lower density values. This can be caused by a more consistent SiO2 insulation layer on highly pure iron powder particles. A correlation between the mechanical smoothing method and better insulation of powder particles can help to provide eco-friendlier solutions for the preparation of soft magnetic composites, such as less usage of reagents and more consistent coverage of powder particles with lower final insulation thickness. The magnetic properties of these compacts are evaluated by coercive field, permeability, and loss measurements. The particle-level smoothing technique in some cases can reduce the value of coercivity up to 20%. For some samples, the ball-to-powder ratio has a bigger impact on magnetic properties than surface treatment, which can be caused by an increased amount of insulation in the SMC compacts. [ABSTRACT FROM AUTHOR]