The conventional method to deal with current transformer (CT) Saturation is over dimensioning of the core so that CTs can carry up to 20 times the rated current without exceeding 10% ratio correction. However, this not only reduces the sensitivity of relays as some errors may still be present in the secondary current when a severe fault occurs, but also increases the CT size. This paper presents an algorithm for compensating the distorted secondary current of iron-cored CTs under CT saturation using the magnetization (flux-current : .lambda.-i) curve and its performance is examined for fault currents encountered on a typical 345[kV] Korean transmission system, under a variety of different system and fault conditions. In addition, the results of hardware implementation of the algorithm using a TMS320C10 digital signal processor are also presented. The proposed algorithm can improve the sensitivity of relays to low level internal faults, maximize the stability of relays for external faults, and reduce the required CT core cross-section significantly. (author). refs., figs.