A method of upgrading coal which comprises: pulverizing low-grade coal; mixing the pulverized low-grade coal with an oil to form a slurry; heating the slurry to or above the boiling point of water to vaporize the water contained in the low-grade coal and dehydrate the coal; compressing a vapor mixture of the steam resulting from the slurry heating and that part of the oil which has vaporized simultaneously and thereby elevating the temperature and pressure of the vapor mixture; and supplying the vapor mixture increased in temperature and pressure by the compression and utilizing this vapor mixture as a high-temperature heat source to heat the slurry. In the method, the vapor mixture before being compressed is brought into contact with an oil in a liquid state. This method is a process in which low-grade coal containing water in a large proportion and hence having a low calorific value is dewatered in an oil to thereby upgrade the coal to a high-calorie fuel for thermal power generation, wherein the vapor mixture to be supplied to a compressor can be purified.