Abstract This paper proposes a new algorithm for power transformer differential protection based on the instantaneous-current-value negative sequence current signals, which are reconstructed in discrete time-domain from the negative sequence phasor for the different transformer windings. Aiming to provide a more reliable operation of the proposed method, the ratio of the operating and restraint negative sequence current signals is integrated during the time. Also, as a by product, a new instantaneous-current-value harmonic restraint strategy is also proposed, to improve protection security for external faults with current transformer (CT) saturation. In order to evaluate the performance of the proposed algorithm, a wide variety of faults are simulated in the Alternative Transients Program (ATP) by varying the fault type; short-circuited turns percentage; sources strength and the power system loading. The obtained results reveal that the proposed method is able to detect turn-to-turn and turn-to-ground faults even for 1% of short-circuited turns, in such way that it may be more sensitive and faster than the traditional differential elements widespread used by manufacturers in real world protection applications. Therefore, the developed algorithm is an excellent complement to the conventional differential functions, for the most faster and sensitive operations for internal faults involving few turns, and safe for external short circuits with CT saturation.