<p>In this study, a fault isolation method is proposed for networks of linear dynamic systems containing loops. The existence of loops in the network structure hampers the fault isolation problem since the propagation of fault effects through the network interconnections can hardly be traced. We show that, by designing proper residual generators for the subsystems in the loop, the fault can be isolated under some gain assumptions. The method requires only a limited number of output measurements. Furthermore, an Unknown Input Observer (UIO)-based disturbance estimation technique is introduced to extend the fault isolation method for such cases when unknown disturbances also influence the dynamic responses of the subsystems. A threshold computation method for the fault isolation algorithm is also presented to handle upper-bounded measurement noises. The simulation results verify the performance of the proposed fault isolation method even under the effect of disturbances and measurement noises.</p>