Abstract: The closed-loop in control system usually brings difficulties for fault identification, because it may destroy the identification ability of the parameters andenhance the false alarm rate as well as the missed alarm rate,leading to the abnormality of multiple variables under the same faulty mode. Firstly, the effect of close loop is analyzed for the single-input single-output (SISO)system,while for the multiple-input multiple-output(MIMO)system the fault propagation is derived theoretically,and the influences on system variables are analyzed. Secondly,the neural network is used to construct the fault identification method. Finally,the mathematical simulation validates the negative effect of closed-loop on fault diagnosis,and the simulation of satellite attitude control systemverifies thattheproposed methodis more effective, comparing with the traditional ones.