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In this paper, a temporal probabilistic approach based on the hidden Markov model (HMM), named physically segmented HMM with continuous output, is introduced for continuous tool condition monitoring in machinery systems. The proposed approach has the advantage of providing an explicit relationship between the actual health states and the hidden state values. The provided relationship is further exploited for formulation and parameter estimation in the proposed approach. The introduced approach is tested for continuous tool wear prediction in a computer numerical control milling machine and compared with two well-established neural network (NN) approaches, namely, multilayer perceptron and Elman network. In the experimental study, the prediction results are provided and compared after adopting appropriate hyper-parameter values for all the approaches by cross-validation. Based on the experimental results, physically segmented HMM approach outperforms the NN approaches. Moreover, the prognosis ability of the proposed approach is studied.