A novel approach to decentralized state estimation in a large-scale interconnected system is proposed. The method assumes a known model for the local subsystem only, and therefore is suitable when the other subsystem models and the interaction matrices are partially or totally unknown. An innovation representation suitable for decentralized subsystem state estimation is derived. The state estimation problem is then solved through the parametric identification of the innovation representation. The identification algorithm is based upon a pseudo-linear regression (PLR) principle that attempts minimization of the innovation variances.