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A novel fuzzy-observer-design approach is presented for Takagi-Sugeno fuzzy models with unknown output disturbances. In order to decouple the unknown output disturbance, an augmented fuzzy descriptor model is constructed by supposing the disturbance to be an auxiliary state vector. A fuzzy state-space observer is next designed for the augmented fuzzy descriptor system, and the simultaneous estimates of the original state and disturbance are thus obtained. The proposed observer technique is further applied to estimate sensor faults. Finally, a numerical example is given to illustrate the design procedure, and the simulation results show the desired tracking performance. The pre knowledge of the disturbance and fault is not necessary for our design. Moreover, the considered disturbance and sensor fault can be in any form.