This study presents a new technique for condition monitoring of motor windings in variable speed drive systems. The technique employs high-frequency injection to monitor the machine's incremental inductances. These inductances can provide an indication of changes in the magnetic signature owing to the presence of electrical faults. The Space modulation profiling (SMP) technique is used to create a look-up table that defines the healthy incremental inductance signature of the drive as a function of load and rotor position. A similar signature is obtained online; this is compared with the SMP look-up table to derive an error signal which can be used to trigger warnings or alarms as faults develop. In this study, the emphasis is on the detection of stator winding faults in a permanent magnet AC machine, including incipient and short-circuit faults. The result is a monitoring scheme with improved sensitivity with respect to monitoring schemes based on the passive measurement of terminal quantities. Experimental results show that the monitoring scheme has a fast response and high sensitivity which make it suitable for predicting faults at an early stage of development, before they degenerate into a serious fault which requires drive shutdown.