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Due to small grounding current and unstable electric arc at fault position, the faulty circuit selection in resonant grounded systems has always been a complex and difficult problem. This paper proposes a new diagnostic method based on the matter-element and correlation analysis of Extension Theory. The characteristics variables of zero-sequence current and the correlation function have been used to identify the correlation. With the results, we may select the faulty lines. In the new method, the weighting coefficient of fault characteristics is endowed with variance of correlation function. Which not only widening the gap between correlations but also erasing the influences of little current and the unstable electric arc. When the fault is in the short circuit, the method may erase the influence of capacitive current in normal long one too. Lots of digital simulation results show that the proposed method is effective and reliable.