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This paper aims at large-scale power transformer, introduces Hidden Markov Models theory into power transformer fault diagnosis field, and a fault diagnosis method using the HMM is put forward. Some issues and their settling methods about the HMM applying into power transformer brings are further analyzed. The fault diagnosis principle bases on the HMM is discussed in detail. The power transformer faults are classified and each of their characteristic variables is determined, accordingly, the fault diagnosis model library for power transformer is researched. Finally, the fault diagnosis system for large-scale power transformer is designed.