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Malicious hardware Trojan circuitry inserted in safety-critical applications is a major threat to national security. In this work, we propose a novel application of a key-based obfuscation technique to achieve security against hardware Trojans. The obfuscation scheme is based on modifying the state transition function of a given circuit by expanding its reachable state space and enabling it to operate in two distinct modes - the normal mode and the obfuscated mode. Such a modification obfuscates the rareness of the internal circuit nodes, thus making it difficult for an adversary to insert hard-to-detect Trojans. It also makes some inserted Trojans benign by making them activate only in the obfuscated mode. The combined effect leads to higher Trojan detectability and higher level of protection against such attack. Simulation results for a set of benchmark circuits show that the scheme is capable of achieving high levels of security at modest design overhead.