In order to detect power system fault using limited PMU quickly and effectively, a novel online fault detection algorithm is proposed. The power grid is divided into different zones by the placement strategy of limited PMUs. The character that the sum magnitudes of positive, negative and zero sequence currents entering one zone increase evidently is analyzed. An identification method of faulted zone is given. The pure fault equivalent model is constructed, as well as the fault component voltage equation based on virtual nodes. Using PMU electrical variables from boundary nodes of the zone, the fault component voltage over-determined equations are derived. The fault position of faulted line is obtained using the least square method. Then fault line in faulted zone is correctly detected. The effectiveness of proposed algorithm is illustrated by the simulation tests on IEEE 14-bus system. It is not affected by fault position, type and transition resistance. The fault position accuracy using least square method can meet the requirements. This work is supported by National Natural Science Foundation of China (No. 51377137).