This paper presents a generalized nonlinear observer design method for interconnected power systems. The concepts of nonlinear coordinate transformation, Lie derivative, and relative degree are used to design the observer for power systems. In this proposed design framework, the both cases are considered-when the relative degree of a nonlinear system is equal to the order of the system and when the relative degree is not equal to the order of the system. The nonlinear observer gain is calculated from the Jacobian of nonlinear coordinate transformation. The main advantages of this design technique is the simplicity to construct the unmeasured states and applications to other fields. The proposed observer is simulated on a single machine infinite bus (SMIB) system to construct all the states of power system and a comparison between the actual states and observed states is also presented.