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Power transformers are to be monitored frequently to avoid catastrophic failures which are more or less related to internal faults. Many techniques and tools are developed world wide and most of these techniques rely on expert's analysis and are well affected by environmental conditions which lead to misinterpretation of the test. In this paper a new fuzzy logic algorithm (FLA) based technique is developed which gives the vulnerability status of internal faults by considering thermal, electrical and mechanical conditions prevailing in the transformer and integrating them. This system takes a set of test results of dissolved gas analysis, insulating oil break down voltage, and sweep frequency response analysis so that aliasing effects and misinterpretions can be reduced at a glance. It also facilitates to give status of prevailing condition of Paper thermal, Oil thermal, Partial discharge, Electrical arching, oil break down voltage, and mechanical deformations related with core and windings individually. This system consists of 10 fuzzy logic controllers and they are connected by considering technical conditions and reasons, the rule bases of these controllers were developed by considering various standards and experience of TIFAC CORE in NIT-Hamirpur. The proposed system is tested and found that it is highly precise in classifying the situations of any transformer, reducing aliasing effects and identifying the current prevailing conditions.