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This paper presents a new scheme for encoding position information in hard disk drives (HDDs). Modern HDDs use embedded servo patterns where the servo sectors containing information related to the location of the tracks are placed interleaved with the data blocks. Reduced length of the servo sector, therefore, means availability of more space for storage of data. The scheme of dual-frequency servo burst used in this paper enables more than 50% reduction in the length of the servo bursts that encode the position error sensing signal (PES). Different methods suitable for decoding PES from the samples of these servo bursts are also discussed, and a detection technique based on the concepts of discrete Fourier transform (DFT) is proposed. High sensitivity and flexibility of the digital PES allows the tracks to be placed closer which, is required to meet the demands of future generation HDDs. The dual frequency servo bursts are written on a 2.5-in disk to create tracks at a spacing of 10 μ-in, and the PES is decoded from the samples of the burst waveforms using DFT-based algorithms. The linearity of the decoded position offset proves the effectiveness of the proposed encoding method and the decoding algorithm.