Additive manufacturing of Al alloys by fusion-based processes often leads to higher thermal gradients along the build direction resulting in anisotropy, and solidification-related defects such as porosity, hot-cracking, and lack of inter and intra-layer fusion. Therefore, this paper focuses on solid state multi-layer manufacturing of Al 6061 alloy by friction stir powder additive manufacturing (FSPAM) process and enhancing its microstructure and mechanical properties through reduction of thermal gradient along the build direction by maintaining the substrate close to its artificial aging temperature using external heat source in a close-loop with it. The continuous dynamic recrystallization along with reduced thermal gradient led to homogenous microstructure, fine and equiaxed grains of Al 6061 alloy multi-layer deposition. The inherent compressive forces in FSPAM process promoted intimate contact among the powder particles presenting 0.19% porosity. Energy dispersive spectroscopy showed absence of agglomeration of alloying elements due to better mixing of feedstock material beneath the tool. Phase analysis revealed presence of Al and hardening phase Mg2Si with slight shifting of peaks towards higher angle indicating compressive residual stresses. Tensile properties and microhardness of Al 6061 alloy are closer to AA6061-T4 and better than AA6061-O alloy. Reduced thermal gradient contributed to minimal variations in microhardness (8.8%) along the build direction. Fracture morphology analysis exhibited a significant number of dimples indicating ductile nature of Al 6061 alloy with 16.7% elongation. The study presented a new approach for manufacturing Al alloys using their feedstock in powder form and with improved microstructure and mechanical properties.