A new differential protection principle for transformer is proposed utilizing calculated power in this paper. It is able to discriminate between inrush and internal fault of transformers with large capacity and extra high voltage, preventing the maloperation due to magnetizing inrush. The calculated power is derived based on two-port network equivalent. An algorithm is presented that is practical for implementing in microcomputer relays. The effectiveness is proved by applying the proposed method to a Y/D-11 two-winding transformer rated 667MVA, 500 /10.5kV by via EMTDC simulation.