The formation and size tuning of silicon nanocrystals embedded in silicon oxide films grown by reactive pulsed laser ablation followed by ion beam irradiation is reported. Nanocrystalline silicon is prepared in silicon oxide matrix by ablating silicon target in oxygen environment at definite oxygen partial pressure. Irradiation of these films with 120MeV Ni leads to the uniformity, size reduction, surface smoothness and shaping of these nanostructures. The structural, optical and morphological studies show that the nanocrystalline silicon undergoes further reduction due to irradiation. The results are explained by combining spinodal decomposition phenomena and thermal spike model.