I am loading an image in bufferedimage and then writing some text on it .After I add text it makes image blurry and text distorted. I have TEXT ANTIALIASING ON . It can be seen as attached.

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You should be able to control the text quality with the rendering hints that are shown in the other responses. I know that it works because I have done it a lot, so I think it must be something else that causes the quality degradation in this case.
If this still doesn’t help you to find the cause please provide some more information (VM version, operating system) and source code. The text rendering has become quite good with JDK 1.6 Update 10 but also earlier releases were able to produce clean text in images, it just didn’t look as good because of less sophisticated antialiasing.
in response to your comment:
High contrast sharp edges as in text are a general problem with JPEG compression since it is not a lossless compression. If you really need to go with JPEG and can’t switch to PNG, you can tune the compression quality of your saved image to find a better compromise between image quality and file size. See the following code on how to set the compression quality when you save a JPEG.