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Detection and diagnosis of partial discharge (PD) activity has been widely adopted in electrical plant condition monitoring. Analysis and detection of PD in practical applications is often hampered by noise in the signal. Recent research has shown that the discrete wavelet transform (DWT) is effective in extracting PD pulses from severe noise. One disadvantage, however, is that DWT does not reproduce accurate PD pulse magnitude and pulse shape after thresholding in the presence of strong noise. This paper presents the application of the second generation wavelet transform (SGWT), as an improved algorithm, to extraction of PD pulse from electrical noise. The paper begins with the description of the fundamental theory and structure of SGWT analysis and comparisons with DWT. The method is then applied to both simulated and real world PD data. Results prove that SGWT can significantly improve the effectiveness of PD denoising.