This paper proposes a new protective relaying algorithm using Neuro-Fuzzy and wavelet transform. To organize advanced nuero-fuzzy algorithm, it is important to select target data reflecting various transformer transient states. These data are made of changing-rates of Dl coefficient and RSM value within half cycle after fault occurrence. Subsequently, advanced neuro-fuzzy algorithm is obtained by converging the target data. As a result of applying the advanced neuro-fuzzy algorithm, discrimination between internal fault and inrush is correctly distinguished within 1/2 after fault occurrence. Accordingly, it is evaluated that the proposed algorithm can effectively protect a transformer by correcting discrimination between winding fault and inrushing state.