This invention relates to a method for production modified polyvinyl alcohol and to a water vapor- and smoke-permeable synthetic food casing, with improved optical properties, containing such modified polyvinyl alcohol. Polyvinyl alcohol powder with the degree of hydrolysis of 70-98 mole % and 3-30 cPs viscosity of 4% aqueous solution is loaded while stirring into a mixer for dry and highly viscous materials and 0.05-3.0% of concentrated aqueous solution of sodium peroxide and/or potassium peroxide and/or calcium peroxide and/or hydrogen peroxide in neat hydrogen peroxide equivalent are added. The dry by touch reaction mixture is stirred at 45-100°C until virtually complete consumption of the peroxide compound and formation of modified polyvinyl alcohol powder. This polyvinyl alcohol can be converted to a form convenient for extrusion, by addition of virtually non-volatile plasticizers and subsequent molding operations. Another object of the present invention is a single- or multilayer water vapor- and smoke- permeable synthetic sausage casing with improved optical properties, comprising in at least one of its layers such modified PVA and polyamide material. The layer comprising such modified PVA is extruded from a blend containing from 10 to 95.5% of polyamide material, and from 4.5 to 50% of modified PVA obtained in one or another form according to the present invention, and also from 0 to 40% of additives.