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In this paper we develop a nonsmooth output feedback framework for local and/or global stabilization of a class of inherently nonlinear systems, which may not be achieved by any smooth feedback controller. A systematic design algorithm is presented for the construction of stabilizing, dynamic output compensators that are nonsmooth but Holder continuous. A new ingredient of the proposed output feedback control scheme is the introduction of a recursive observer design procedure, making it possible to construct a reduced-order observer step-by-step, in a naturally augmented fashion. Such nonsmooth design leads to a number of new results on output feedback stabilization of nonlinear systems with unstabilizable/undetectable linearization. One of them is the global stabilizability of a chain of odd power integrators by Holder continuous output feedback. The other one is the local stabilization using nonsmooth output feedback for a wide class of nonlinear systems studied in Qian and Lin (2001), where only global stabilizability by nonsmooth state feedback was proved to be possible.