This paper propose a new decaying DC component Estimation algorithm for digital relaying. Fault currents tend to include a DC decaying component. This component decreases the accuracy and speed of the protection relay operation. The proposed algorithm can estimate and eliminate the DC decaying component from fault current signals after one cycle from the fault instant. Also, it can be applied to a conventional discrete Fourier transform to calculate phasor quantities of fault currents in a digital protection relay. In the proposed algorithm, the DC decaying magnitude and time constant are estimated exactly by integrating fault currents during one cycle. The DC decaying component is eliminated by subtracting the DC value at each sampling instant. To verify the performance of the proposed algorithm, we performed a DC component estimation test and distance protection test using PSCAD/EMTDC. The results of the PSCAD/EMTDC simulation showed that the proposed algorithm can estimate DC components exactly from fault currents and can be applied to digital protection relays for phasor extraction © 2012 IEEE.