In this paper, a class of interconnected systems with structured and unstructured uncertainties is considered where the known interconnections and uncertain interconnections are nonlinear. The bounds on the uncertainties are employed in the observer design to enhance the robustness when the structure of the uncertainties is available for design. Under the condition that the structure distribution matrices of the uncertainties are known, a robust sliding mode observer is designed and a set of sufficient conditions is developed to guarantee that the error dynamics are asymptotically stable. In the case that the structure of uncertainties is unknown, an ultimately bounded approximate observer is developed to estimate the system states using sliding mode techniques. The results obtained are applied to a multimachine power system, and simulation for a two machine power system is presented to demonstrate the feasibility and effectiveness of the developed methods.