The synthesis of metal nanoclusters in a polymeric environment has been shown to yield nearly monodisperse particles, whose size is controlled by the strength of the polymer/metal interactions. Although the phenomenon is quite general, little is known regarding the mechanism by which the polymer controls nanocluster size. Previous studies of the kinetics of nanocluster growth in polymeric melts above the glass transition temperature (Tg) showed that the nanoparticle size is set by the critical cluster size rather than the rate of metal precursor transport. In this paper we examined the kinetics of iron-oxide (Fe2O3) nanocluster formation in two polymer melts below their Tg: polystyrene (PS) and poly(methyl methacrylate) (PMMA). We found that the rate of particle formation is nucleation-controlled for both PS and PMMA, similarly to the same process above Tg, while the growth stage is diffusion limited. Transmission electron microscopy (TEM) revealed needlelike particles morphology with larger average dimensions as the temperature is elevated towards polymer matrix Tg. The stabilizing effect of the polymer chains on the growth of the nanoparticles was dominant when the synthesis was performed in solution or in the melt, allowing the polymer to adsorb on the cluster. However, below its Tg the chains were not free to move and conform to the nanocluster surface, and hence, capping occurred when the cluster growth limitation was imposed by the geometric confines set by the voids in the polymer matrix.