This paper deals with the development of an innovative distributed construction system based on smart prefabricated concrete elements for the real-time condition assessment of civil infrastructure. So far, two reduced-scale prototypes have been produced, each consisting of a $0.2{ imes}0.3{ imes}5.6$ m RC beam specifically designed for permanent instrumentation with 8 long-gauge Fiber Optic Sensors (FOS) at the lower edge. The sensing system is Fiber Bragg Grating (FBG)-based and can measure finite displacements both static and dynamic with a sample frequency of 625 Hz per channel. The performance of the system underwent validation in the laboratory. The scope of the experiment was to correlate changes in the dynamic response of the beams with different damage scenarios, using a direct modal strain approach. Each specimen was dynamically characterized in the undamaged state and in various damage conditions, simulating different cracking levels and recurrent deterioration scenarios, including cover spalling and corrosion of the reinforcement. The location and the extent of damage are evaluated by calculating damage indices which take account of changes in frequency and in strain-mode-shapes. The outcomes of the experiment demonstrate how the damage distribution detected by the system is fully compatible with the damage extent appraised by inspection.