An on-line optimising control strategy involving a two level extended Kalman filter (EKF) for dynamic model identification and a functional conjugate gradient method for determining optimal operating condition is proposed and applied to a biochemical reactor. The optimiser incorporates the identified model and determines the optimal operating condition while maximising the process performance. This strategy is computationally advantageous as it involves separate estimation of states and process parameters in reduced dimensions. In addition to assisting on-line dynamic optimisation, the estimated time varying uncertain process parameter information can also be useful for continuous monitoring of the process. This strategy ensures that the biochemical reactor is operated at the optimal operation while taking care of the disturbances that are encountered during operation. The simulation results demonstrate the usefulness of the two level EKF assisted dynamic optimizer for on-line optimising control of uncertain nonlinear biochemical systems.