With the popularization of network applications and multiprocessor systems,dependability of systems has drawn considerable attention. This paper presents a new technique of node grouping for system-level fault diagnosis to simplify the complexity of large system diagnosis. The technique transforms a complicated system to a group network, where each group may consist of many nodes that are either fault-free or faulty. It is proven that the transformation leads to a unique group network to ease system diagnosis. Then it studies systematically one-step t-faults diagnosis problem based on node grouping by means of the concept of independent point sets and gives a simple sufficient and necessary condition. The paper presents a diagnosis procedure for t-diagnosable systems. Furthermore, an efficient probabilistic diagnosis algorithm for practical applications is proposed based on the belief that most of the nodes in a system are fault-free. The result of software simulation shows that the probabilistic diagnosis provides high probability of correct diagnosis and low diagnosis cost, and is suitable for systems of any kind of topology.