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A novel unknown input reduced-order observer (UIRO) design scheme is presented. It is proved that unknown input appearing in measurement can be eliminated by a simple algebraic transformation. Then, a new UIRO design scheme is proposed via a transformation under no unknown input existing in measurement.Compared with other known results, the condition is weaker than others. So it was further reasonable. The design procedure proposed is simple and straightforward enough to be applied. An example is given to show its efficiency in fault diagnosis.