Proper management of hydrogen gas is extremely important for the safety security of nuclear power plants. Hydrogen removal by the water formation reaction on a catalyst is one of the candidates for creating hydrogen safety system. We observed in situ and real-time-resolved structure change of palladium metal nanoparticles during the water formation reaction by using X-ray absorption spectroscopy technique. The effect of carbon monoxide poisoning on catalytic activity was also studied. We have found that the creation of oxidized surface layer on palladium metal nanoparticles plays an important role of the water formation reaction process.