A servo system of automatic loading manipulator arm (ALMA) with backlash nonlinearity is investigated in this paper to suppress the limit cycle oscillation. To provide a more accurate representation of the system response, a two-inertia model method is employed. According to the system response, the influence of variation in backlash width, load inertia, and proportionality factor on the limit cycle is discussed using the frequency domain analysis method. The decrease of transmission torque resulting from backlash nonlinearity as the main cause of limit cycle oscillation is identified. Based on frequency domain analysis, an oscillation suppression method that employs backlash as disturbance compensation is proposed. A novel Third-order Nonlinear Extended State Observer (TNESO) that is more economical and reliable than torque sensors is utilized to estimate the transmission torque. Consequently, the estimated transmission torque as well as the displacement of the motor and load is utilized to obtain the backlash disturbance which can be counteracted by introducing a compensation of current reference value to mitigate the adverse effects of backlash on the system. The comparison of displacement-time curve between compensated and uncompensated experiments reveals that positioning error is reduced from 0.006 rad to 0.001 rad when displacement is compensated. Besides, the compensated system's position curve is smoother. Thus, the effectiveness of the proposed method is verified.