In this paper, we focus on observer-based approaches of leak detection and isolation in pipeline networks, which has the potential to be extended to large-scale water supply network systems, while in previous studies only single pipeline scenario is considered. Due to several disadvantages of implementing centralized state estimation for large-scale systems, the distributed Kalman filter algorithm has been applied in this paper. The observers are designed on the basis of a set of nonlinear fluid models of pipelines, pumps and other hydraulic accessories, with uncertainties in leak position and magnitude. The approach assumes only flow and pressure measurements at the ends of each duct. Simulation results with a water transmission line are presented to assess the efficiency of the proposed distributed state estimation method while comparing with its centralized counterpart.