Various research groups across the globe have developed models for engine condition monitoring and fault diagnosis based on the data from steady state performance measurements over the last two decade. However, these performance data are not amenable for easy collection in some situations and some of the data may show little performance deviation at the steady state conditions of operation. In addition, the motion of an automobile in urban settings is mostly transient due to stopgo nature of the traffic. It has been extensively reported that the transient operation results in higher undesirable emission level in the exhaust gases as compared to steady state condition of operation, especially if there are faulty engine components. The above discussion implies that the transient measurements may provide large performance deviation as compared to the steady state measurements for diesel engine condition monitoring and diagnostics purposes. The aim of this study is to identify engine operating conditions and parameters that can be used to develop a diagnostic tool for internal combustion (CI) engine running on biodiesel blends fuel.In this work a 4 cylinders, 4 stroke, and water cooled diesel engine is modelled with Ricardo wave to generate data for diagnostic modelling. Diesel-Wibie combustion model, Woschni heat transfer model and map based turbocharger models have been used for engine running with 10% by volume biodiesel fuel in the model. The model is validated using test results from real CI engine running under steady and transient conditions of operation during the healthy state of the engine. After validation Wave model has been used to analyse the deviations of critical parameters during actual as well as degraded conditions of steady state and transient state operations. Since injectors fault is one of the most basic problems in biodiesel fuel utilization due to higher viscosity of the fuel, the faults in fuel injectors have been used for developing the diagnostic model of the engine under degraded condition of operation. The the degraded condition of operation was created by forcing one one injector to work with 90%, 80% and 70% of the normal fuel flow efficiency. The measurable performance parameters such as brake power, brake torque and exhaust temperature and in-cylinder pressure have been used to compare the deviations during steady and transient condition. From the comparison of the data obtained from transient and steady state simulation of the engine with and without injector fault, it can be concluded that the transient parameters show higher deviations and hence are better suited for condition monitoring and diagnostic modelling in engine working speed.