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This paper proposes a nonlinear velocity observer for output regulation of ball and plate system. Ball velocities are estimated by state observer instead of first order difference method. Dynamics of motion resistances are included and estimated in augmented state space. Simulation and experimental results on ball and plate platform have shown that nonlinear state observer provided reliable estimation of velocities. Accuracy of velocity estimation is promoted with state space augmentation than the original system. Regulators with a nonlinear velocity observer do stabilize the ball and plate system.