SUMMARYA new method based on runs test is proposed to distinguish the inrush currents from the internal faults in power transformers, which is derived from the inherent differences between these waveforms. First, two statistical hypotheses that represent these differences are defined. Then by testing these hypotheses using runs test and by comparing the outputs of the hypotheses, a criterion to identify the internal fault is obtained. A total of 200 experimental cases are used to test the performance of the technique. In all of the tests, the proposed method accurately distinguished between fault and inrush currents without any errors. Also the suitable performance of the method is demonstrated by simulation of different faults and switching conditions on a power transformer. For this purpose, a small part of Iran power system involving a power transformer and the transmission lines on both sides of the transformer has been considered. To include effective factors on differential current components, the elements of this power system have been precisely modeled in PSCAD/EMTDC.