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Automatic defect detection on hot-rolled steel surface is challenging owing to its localization on a large surface, variation in appearance, and their rare occurrences. It is difficult to detect these defects either by physics-based models or by small-sample statistics using a single threshold. As a result, this problem is focused to derive a set of good-quality defect descriptors from the surface images. These descriptors should discriminate the various surface defects when fed to suitable machine learning algorithms. This research work has evaluated the performance of a number of different wavelet feature sets, namely, Haar, Daubechies 2 (DB2), Daubechies 4 (DB4), biorthogonal spline, and multiwavelet in different decomposition levels derived from 32 × 32 contiguous (nonoverlapping) pixel blocks of steel surface images. We have developed an automated visual inspection system for an integrated steel plant to capture surface images in real time. It localizes defects employing kernel classifiers, such as support vector machine and recently proposed vector-valued regularized kernel function approximation. Test results on 1000 defect-free and 432 defective images comprising of 24 types of defect classes reveal that three-level Haar feature set is more promising to address this problem than the other wavelet feature sets as well as texture-based segmentation or thresholding technique of defect detection.