Abstract: The area of fault detection is becoming more interesting since there have been many unique designs to detect or even compensate the faults, either from sensor or actuator. This paper applies the hydraulic system with interconnected tanks by implementing a leakage on one of the three tanks. The mathematical model along with the details of stability properties are highly discussed in this paper by imposing the Lyapunov and boundedness stability. The theory of fault detection with certain threshold after the occurrence of the fault corresponding to the state estimation error is mathematically presented ended by simulation. Moreover, the system compares the effectiveness of the proposed observer using Luenberger observer, adaptivescaling Kalman and consensus filtering.