Phase purity plays a vital role in achieving high capacity and long cycle life for lithium iron phosphate. Given that LiFePO4 has lower electronic and ionic conductivity, carbon coating on fine particle surface is often used in order to improve the electrochemical performance of LiFePO4. Unfortunately, the carbon coating process is an inherently reducing process that is difficult to control and often results in the over-reduction of LiFePO4, turning it into iron phosphide. Our research here demonstrates the formation of a non-conductive Fe2P2O7 phase during the carbon coating process on LiFePO4. This phase formation is found to be dependent on particle size, temperature, and annealing atmosphere. Furthermore, these changes are found to directly associate with the change of the reducing potential. The finding in this work aims to guide and control the phase purity of carbon coated LiFePO4 by identifying important parameters that need to be taken under consideration during the carbon coating process in an effort to realize excellent electrochemical performance.