This paper proposes a new steel strip surface inspection system. The system acquires bright and dark field images of defects by using a stroboscopic IR LED illuminator and area camera system and the defect images are preprocessed and segmented in real time for feature extraction. 4113 defect samples of hot rolled steel strip are used to develop KNN (k- Nearest Neighbor) classifier which classifies the defects into 8 different types. The developed KNN classifier demonstrates about 85% classifying performance which is considered very plausible result.