The kraft lignin's low molecular weight and too high hydroxyl content hinder its application in bio-based carbon fibers. In this study, we were able to polymerize kraft lignin and reduce the amount of hydroxyl groups by incubating it with the white-rot fungus Obba rivulosa. Enzymatic radical oxidation reactions were hypothesized to induce condensation of lignin, which increased the amount of aromatic rings connected by carbon-carbon bonds. This modification is assumed to be beneficial when aiming for graphite materials such as carbon fibers. Furthermore, the ratio of remaining aliphatic hydroxyls to phenolic hydroxyls was increased, making the structure more favorable for carbon fiber production. When the modified lignin was mixed together with cellulose, the mixture could be spun into intact precursor fibers by using dry-jet wet spinning. The modified lignin leaked less to the spin bath compared with the unmodified lignin starting material, making the recycling of spin-bath solvents easier. The stronger incorporation of modified lignin in the precursor fibers was confirmed by composition analysis, thermogravimetry, and mechanical testing. This work shows how white-rot fungal treatment can be used to modify the structure of lignin to be more favorable for the production of bio-based fiber materials.