In this paper, we present a new decentralized observer for a class of nonlinear interconnected systems, based on an optimal control law using the two-point boundary value (TPBV) successive approximation approach. This technique, used previously to develop a nonlinear decentralized suboptimal control for a multimachine power system, inspired us to develop a new method to design a decentralized observer-based suboptimal control law for the same system. The TPBV approach is characterized by the transformation of each high order coupling nonlinear TPBV problem into a sequence of linear decoupling TPBV problems that uniformly converge to the optimal control for nonlinear interconnected large-scale systems. Sufficient conditions for the asymptotic stability of the developed feedback control scheme are proposed in terms of linear matrix inequalities (LMIs) constraints, which can be efficiently solved by the LMI optimization techniques, to compute the control and the observation gains of the overall system. We applied this approach to a three-machine power system which generators are nonlinear systems strongly interconnected. We demonstrated clearly, via advanced simulations, that this approach was able to bring good performances, improving effectively transient stability of this power system in few iterative sequences while allowing the reconstruction of its non-measurable state variables.