In an attempt to enhance phase transformation and homogenization of Mn-doped $FeSi_2$, mechanical alloying of elemental powders was applied. Cold pressing and sintering in vacuum were carried out to produce a dense microstructure, and then isothermal annealing was employed to induce a phase transformation to the $eta$-$FeSi_2$semiconductor. Phase transitions in this alloy system during the process were investigated by using XRD, EDS and SEM. As-milled powders after 100 h of milling were shown to be metastable state. As-sintered iron silicides consisted of untransformed mixture of $alpha$-$Fe_2$$Si_{5}$and $varepsilon$-FeSi phases. $eta$-$FeSi_2$phase transformation was induced by subsequent isothermal annealing at $830^{circ}C$, and near single phase of $eta$-$FeSi_2$was obtained after 24 h of annealing. Thermoelectric properties in terms of Seebeck coefficient, and electrical conductivity were evaluated and correlated with phase transformation. Seebeck coefficient electrical resistivity and hardness increased with increasing annealing time due to $eta$ phase transformation.