Preheat oven to 350°.
Combine sugar and margarine in a large bowl; beat at medium speed of a mixer until well-blended. Add egg and vanilla; beat well. Combine flour, baking powder, nutmeg, and salt; gradually add to sugar mixture, beating until well-blended. Add chestnuts; beat well.
Turn dough out onto a lightly floured surface; knead lightly 7 times. Shape dough into a 12-inch-long roll. Place roll on a baking sheet coated with cooking spray; flatten to a 1-inch thickness.
Bake at 350° for 30 minutes. Remove roll from baking sheet; let cool 10 minutes on a wire rack.
Cut roll diagonally into 16 (1/2-inch) slices. Place slices, cut sides down, on a baking sheet. Bake at 350° for 5 minutes. Turn cookies over; bake an additional 5 minutes (cookies will be slightly soft in center but will harden as they cool). Remove from baking sheet; let cool completely on wire rack.
Note: Store the biscotti in an airtight container.