In this paper the	effects of variable thermo-physical properties of the fluid on laminar natural convection heat transfer and fluid flow were determined using a penalty finite element method for an annulus between two concentric cylinders problem with radius ratio 2.6 (Rout/Rin=2.6), considering both constant and variable fluid properties. The penalty finite element method was used for Rayleigh numbers ranging from 103 to 105 and Pro= 0.71. The formulation was based on primitive variables.