The power transformer needs fast protection as well as continuous monitoring since it is an important electrical equipment as well as essential element for power system to perform effectively. For the protection of the power transformer various methods are available. Percentage differential logic is the most common technique used for the protection of the transformer as it can easily provide discrimination between different operating conditions and internal fault. But some operating conditions of the power transformer significantly affect the differential logic behavior and hence the power system stability. In this study it has been proposed the development of an algorithm to improve the protection performance by using fuzzy logic and dq0 transform. By the use of MATLAB software, an electrical power system was modelled to obtain the operational conditions and fault situations needed to test the algorithm.