A pilot-scale UASB-Settler-Digester (USD) system was utilized to treat raw municipal wastewater collected from a sewer system at 10 °C. During the reactor operation, UASB sludge was continuously transferred from the UASB to a settler; concentrated sludge in the settler was then transferred to a digester operated at 35 °C. The results showed that the settler with a hydraulic retention time (HRT) of 3 h increased UASB sludge chemical oxygen demand (COD) concentration from 14.5 ± 2.5 g/L to 29.9 ± 4.1 g/L. With an HRT of 6 h, the USD system achieved a mean COD removal of 49.2%; and 23.9% influent COD was converted to methane. The specific methanogenic activities at 35 °C of the UASB and the digester sludge were 0.26 and 0.24 g CH4 COD/(g VSS d), respectively, and the stability values were 0.21 and 0.16 g CH4 COD/g COD, respectively. The stability of the settled sludge was similar to that of the recirculated UASB sludge. Compared to a UASB-digester system, the system with an added settler achieved similar COD removal and methane production, but reduced sludge recirculation rate (from 16% to 8% of the influent flow rate), which led to a 50% heating energy saving in the digester of the UASB-digester.