Obtaining new insights into the behavior of free-living marine organisms is fundamental for conservation efforts and anticipating the impact of climate change on marine ecosystems. Despite the recent advances in biotelemetry, collecting physiological and behavioral parameters of underwater free-living animals remains technically challenging. In this thesis, we develop the first magnetic underwater animal monitoring system that utilizes Tunnel magnetoresistance (TMR) sensors, the most sensitive solid-state sensors today, coupled with flexible magnetic composites. The TMR sensors are composed of CoFeB free layers and MgO tunnel barriers, patterned using standard optical lithography and ion milling procedures. The short and long-term stability of the TMR sensors has been studied using statistical and Allan deviation analysis. Instrumentation noise has been reduced using optimized electrical interconnection schemes. We also develop flexible NdFeB-PDMS composite magnets optimized for applications in corrosive marine environments, and which can be attached to marine animals. The magnetic and mechanical properties are studied for different NdFeB powder concentrations and the performance of the magnetic composites for different exposure times to sea water is systematically investigated. Without protective layer, the composite magnets loose more than 50% of their magnetization after 51 days in seawater. The durability of the composite magnets can be considerably improved by using polymer coatings which are protecting the composite magnet, whereby Parylene C is found to be the most effective solution, providing simultaneously corrosion resistance, flexibility, and enhanced biocompatibility. A Parylene C film of 2μm thickness provides the sufficient protection of the magnetic composite in corrosive aqueous environments for more than 70 days. For the high level performance of the system, the theoretically optimal position of the composite magnets with respect to the sensing direction of the sensor has been estimated using finite element modeling software. The magnetic sensing system has been practically implemented for monitoring the belly size of a model fish and for monitoring the behavior of the largest living bivalve, giant clam (Tridacna maxima) in an aquarium. In both of these experiments, the sensing system showed a high performance, indicating its potential for novel marine monitoring applications.