To enhance the performance and widen the operating range, the design of a fuzzy observer-based power system stabilizer (PSS) is presented in this paper. A new practical design, which guarantees robust pole-clustering in an acceptable region in the complex plane for a wide range of operating conditions, is proposed. The nonlinear power system model with uncertainties is initially approximated by a Takagi-Sugeno (T-S) fuzzy system. A fuzzy observer/regulator based on a parallel distributed compensation (PDC) control law is suggested. Sufficient design conditions are derived in the form of linear matrix inequalities (LMI). The design procedure leads to a convex optimization problem in terms of the observer and stabilizer gain matrices. Simulations results of both single-machine and multimachine power systems confirm the effectiveness of the proposed PSS design.