The invention relates to a transformer internal fault on-line monitoring method which is characterized by specifically comprising the following steps: (1) establishing a T-shaped equivalent circuit model according to a transformer circuit structure; (2) constructing a target function J shown in the following formula (I), wherein the target function is used for solving a high-voltage side resistorR1, a high-voltage side leakage reactance X1, a low-voltage side resistor reduction value R2', a low-voltage side leakage reactance reduction value X2', an excitation resistor Rm and an excitation reactance Xm; (3) under the normal condition of the transformer, selecting an optimization algorithm to carry out optimization calculation by taking the formula J as the target function to obtain optimalsolutions and corresponding fitness of R1, X1, R2', X2', Rm and Xm, (4) carrying out online monitoring on the transformer, and (5) comparing and judging a fault type. According to the transformer internal fault on-line monitoring method, the equivalent circuit parameters of the transformer, such as winding resistance, leakage reactance and equivalent excitation branch impedance, are judged through on-line calculation and identification, the windings and iron cores can be monitored in real time, the classification monitoring of different internal faults is achieved, and the method has higher sensitivity for slight iron core faults or slight turn-to-turn short circuits.