Diol capped γ-Fe₂O₃ nanoparticles are prepared from ferric nitrate by refluxing in 1,4-butanediol (9.5nm) and 1,5-pentanediol (15nm) and uncapped particles are prepared by refluxing in 1,2-propanediol followed by sintering the alkoxide formed. X-ray diffraction (XRD) shows that all the samples have the spinel phase. Raman spectroscopy shows that the samples prepared in 1,4-butanediol and 1,5-pentanediol and 1,2-propanediol (sintered at 573 and 673K) are γ-Fe₂O₃ and the 773K-sintered sample is Fe₃O₄. Raman laser studies carried out at various laser powers show that all the samples undergo laser-induced degradation to α-Fe₂O₃ at higher laser power. The capped samples are however, found more stable to degradation than the uncapped samples. The stability of γ-Fe₂O₃ sample with large particle size (15.4nm) is more than the sample with small particle size (10.2nm). Fe₃O₄ having a particle size of 48nm is however less stable than the smaller γ-Fe₂O₃ nanoparticles.