The invention provides a rare earth containing, high strength and high toughness seamless steel pipe used for a gas cylinder and a production method thereof, belonging to the technical field of metallurgy and molding. Raw materials comprises, by weight percent, 90 % of blast furnace molten iron and 10 % of high-quality scrap steel. A pipe blank comprises the following chemical components by weight percent: 0.10-0.15 of C, 0.10-0.30 of Si, 0.90-1.20 of Mn, less than or equal to 0.020 of P, less than or equal to 0.010 of S, 0.90-1.20 of Cr, 0.10-0.30 of Mo, 0.40-0.70 of Ni, 0.06-0.20 of V, 0.01-0.03 of Ti, 0.005-0.030 of Al, 0.0005-0.0100 of rare earth element RE, and the balance being Fe and undetectable trace elements. A technology proves comprises steps of pretreatment of molten iron, combined blown converter smelting, LF furnace refine, VD vacuum treatment, round ingot continuous casting, cutting, pipe blank heating, perforation, pipe rolling, sizing, cooling, sawing, heat treatment, straightening, hydrostatic test and flaw detection. Mechanical properties comprises a yield strength of 860-930 MPa, a tensile strength of 1000-1100 MPa, a yield ratio of less than or equal to 0.90, an elongation percentage of more than or equal to 19 %, a transverse impact value aKV of more than or equal to 150 J/cm<2>(-40 DEG C), a grain size of more than 8.0 grade, and a residual stress of less than or equal to 30 MPa. The product provided by the invention has characteristics of low impurity element content, small residual stress, high intensity, good toughness and excellent technology performance.