The leakage of corrosion-and-heat resistant alloy (Duraloy HT/Alloy 330) used as a tube reactor in contact with magnesium-containing environment at elevated temperature was observed after approximately 100 pre-oxidation and operation cycles. Due to configuration during service, thermal gradient is expected and led to partial condensation of vapor magnesium which later reacted with the alloy at the inner wall of the tube. Microstructural analyses including elemental and phase characterization by means of SEM/EDS and XRD techniques suggest phase transformation due to microstructural instability at high temperature. Presence of MgNi2 and Mg2Ni intermetallic compounds at the inner wall confirms outward migration of nickel and inward penetration of liquid magnesium. Interfacial reactions between liquid magnesium and solid nickel, as well as thermal expansion mismatch between oxide scale and bulk material, are believed to be responsible for degradation and voids in the material.