This paper presents a new on-line procedure for identifying MIMO time-varying stochastic dynamic systems. It is based on a decomposition model derived from the state-space representation. This scheme gives an estimated model with a minimal number of parameters. The parameters of the MIMO system are identified from short records with unknown dead times. Extended recursive least-squares and fixed-lag smoothing identification algorithms are applied to identify the validity of the model structure. Artificial and hydrological records are used to illustrate the efficiency of the proposed procedure.