Interturn short circuit faults are the leading cause of power transformer failures. If not quickly detected, these faults usually develop into more serious faults, which would result in irreversible damage to the transformer, unexpected outages, and consequential costs. The aim of this research is to obtain a better understanding of the physical behavior of the power transformers in the presence of interturn faults as well as to discover the best indicators for detection of interturn short circuit faults. To this end, a time stepping finite element model of power transformer has been developed to analyze the transient behavior of a real power transformer when the transformer is working under winding short circuit fault conditions. The transient model, coupled with external circuit equations, allows us to simulate the dynamic behavior of the transformer with the real power supply and external loads connections. The FEM computations show the ability of the electromagnetic flux inside the transformer, transformer terminal currents, and circulating current in the shorted turns as useful monitoring parameters for transformer fault detection. Copyright © 2013 John Wiley & Sons, Ltd.