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In terms of the characteristic of instantaneous magnetizing inductance reflecting the saturation stage in transformer, an improved method is proposed to distinguish between the magnetizing inrush current and short-circuit fault based on the ratio of average equivalent instantaneous inductances between the non-saturation and the saturation zone, which are divided according to a threshold of differential current. During the inrush, the value of equivalent instantaneous inductance varies severely from small to large as the transformer entering into the saturation and withdrawing from it, so the ratio of average equivalent instantaneous inductances between the non-saturation and the saturation zone is very large in one cycle. However, for the short-circuit fault in transformer, the equivalent instantaneous inductance is very small, and keeps little variation, so the ratio is approximately equal to one. The principle and setting of this method is simple and easy, and its identification time is short. The experimental results verify that the method is correct and effective.