A new method based on a bank of ARMarkov observers is proposed in this study for determination of the extent of damage. The objective of this article is to present a new formulation using a predesigned set of ARMarkov observers to determine the extent of damage and track further changes in the stiffness of the damaged member. The primary advantages of the proposed formulation over the existing methods are: (1) ARMarkov observers are designed based on interaction matrix formulation so that knowledge about exact initial conditions is not necessary, and (2) noise statistics are not required a priori to design a bank of ARMarkov observers when compared to a bank of Kalman filters. The simulation results of several examples including a planar truss structure with progressive damage in a member are presented to highlight the capability of the proposed method. The proposed method works well in the case of either a full set or a limited number of available measurements. It is shown that sensitivity enhancing control (SEC) can be easily incorporated into the proposed method to enhance the sensitivity of structural damage. In case of noisy output measurements, it is shown that it is possible to distinguish between the errors due to structural damage and due to noise in output measurements.