Purpose: Traditional anomaly detection methods focus on detecting inter-class variations while medical image novelty identification is inherently an intra-class detection problem. For example, a machine learning model trained with normal chest X-ray and common lung abnormalities, is expected to discover and flag idiopathic pulmonary fibrosis which a rare lung disease and unseen by the model during training. The nuances from intra-class variations and lack of relevant training data in medical image analysis pose great challenges for existing anomaly detection methods. Approach: To tackle the challenges, we propose a hybrid model -nonlinear Transformation-based Embedding learning for Novelty Detection (TEND). Without any out-of-distribution training data, TEND performs novelty identification by unsupervised learning of in-distribution embeddings with a vanilla AutoEncoder in the first stage and discriminative learning of in-distribution data and the non-linearly transformed counterparts with a binary classifier and a margin-aware objective metric in the second stage. The binary discriminator learns to distinguish the in-distribution data from the generated counterparts and outputs a class probability. The margin-aware objective is optimized jointly to include the in-distribution data in a hypersphere with a pre-defined margin and exclude the unexpected data. Eventually, the weighted sum of class probability and the distance to margin constitutes the anomaly score. Results: Extensive experiments are performed on three public medical image datasets with one class as in-distribution data and the left as intra-class out-of-distribution data. Additional experiments on generated intra-class out-of-distribution data with unused non-linear transformations are implemented on the datasets. The quantitative results show our method out-performs state-of-the-art approaches. Provided qualitative examples further demonstrate the effectiveness of TEND. Conclusion: Our anomaly detection model TEND can effectively identify the challenging intra-class out-of-distribution medical images in an unsupervised fashion. It can be applied to discover unseen medical image classes and serve as the abnormal data screening for downstream medical tasks.