Abstract-A test data compression method based on K-L transform is presented in this paper. The original test vector is divided into two parts by using K-L transform: the reference vector and the error vector. The reference vector is implemented approximately via Hadamard Matrix that has a simple hardware structure, and is integrated inside the circuit under test. The error vector is generated by using XOR between the reference vector and the original vector. In this paper, it encodes with the error vector, but without the original vector. In the procedure of synthesis, the reference vector generated by the hardware and the error vector produced by the decompression synthesize the original test vector. The experimental results show that this scheme can achieve an average compression ratio of 77.90%, improve about 15.36%~20.68% comparing with others.