Sliding mode observer has unique properties, in that the ability to generate a sliding motion on the error between the measure plant output and the output of the observer ensures that a sliding mode observer produces a set of state estimates that are precisely commensurate with the actual output of the plant. Sliding mode observer exists for bounded initial conditions and also observer gain has to be changed adaptively for varying initial conditions. To overcome these problems we have proposed a new methodology by combining Luenberger observer with the Sliding mode observer. Sliding mode observer guarantees the finite time convergence of the output error and also Robust to matched disturbances. ©2010 IEEE.