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A novel algorithm for discrimination between inrush currents and internal fault currents by utilizing the normalized grille curve is proposed. First, the calculation method of the normalized grille curve is presented. Then, two schemes to discriminate the inrush currents from the internal faults in the time and frequency domains are, respectively, developed. A total of 268 experimental measurements have been tested on an YNd11-connected transformer. The results indicate that the proposed technique is able to reliably and accurately distinguish inrush currents from internal faults with easy implementation. Furthermore, the new method is not affected by the saturation of current transformers.