System (100) and method for processing biomass. The system comprises a combined heat and power plant (102), an interface (114) for feeding biogas to a traffic fuel production unit, interfaces (114) to a district heating system (106a) and an electrical grid (106b), and a hydrolysis device (108), a digestion device (110), a dryer (116) and a heat recovery unit (112), which are operatively coupled for transferring heat, intermediate products and final products of the process, wherein raw biomass is received into the hydrolysis device (108), biomass processed by the hydrolysis device (108) is fed to the digestion device (110), biogas obtained in the digestion device (110) is fed to the traffic fuel production unit (104), heat is recovered from the hydrolysis device (108), biomass processed by the digestion device (110) is dried by the heat recovered from the hydrolysis device (108), heat is recovered from the dryer (116), heat recovered from the dryer (116) is fed to the hydrolysis device (108) to be used in pre-heating of the received raw biomass, heat recovered from the dryer (116) is fed to the district heating (106a), and production of electricity is fueled by the dried biomass from the dryer (116).