The invention discloses a novel silver rare earth oxide alloy and a preparing method thereof. According to the method, a chemical reduction method and a high-energy ball milling method are combined to prepare nano silver and rare earth oxide powder, and a powder metallurgy technology is used for preparing a novel silver rare earth oxide electric contact material; and the contact material has the higher hardness, density and specific conductance. The silver rare earth oxide electric contact material comprises, by weight percent, 3.0% to 8.0% of Y2O3, 2.0% to 8.0% of La2O3 and the balance Ag. Raw materials used in the method are easily obtained and few, and the cost is low; the technology for combining the chemical reduction method and the high-energy ball milling method to prepare the nano silver and rare earth oxide powder is simple, industrialized production is easily achieved, the method is environment-friendly, the service life of a contact is long, and the higher hardness and density are achieved; and the contact material has the excellent electric performance, meanwhile, the electric contact properties of wear resisting, corrosion resisting, electric arc burning loss resistance, fusion welding resistance and the like are achieved, and therefore the contact performance and the reliability of an electric appliance are improved.