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We present an algorithm for the online detection of rotor bar breakage in induction motors through the use of wavelet packet decomposition (WPD) and neural networks. The system provides a feature representation of multiple frequency resolutions for faulty modes and accurately differentiates between healthy and faulty conditions, and its main applicability is to dynamic time-variant signals experienced in induction motors during run time. The algorithm analyzes rotor bar faults by WPD of the induction motor stator current. The extracted features with different frequency resolutions, together with the slip speed, are then used by a neural network trained for the detection of faults. The experimental results show that the proposed method is able to detect the faulty conditions with high accuracy.