Faults can have significant, negative impacts on the operation and performance of simple and complex dynamic systems. Based on the integration of Bayesian network diagnostic features with Petri net formalism, the existing Bayesian-supported Petri net tool has demonstrated the flexibility of using the Petri net approach for diagnosing failure scenario of a dynamic system. However, studies on using the proposed hybrid Petri net approach for condition monitoring and early detection and diagnosis of single and multiple failures in a dynamic system with feedback control loops are yet to be investigated. Thus, this paper presents a methodology to address this research gap using the operation of a water tank level control system as a case study. The method combines the constructed Generalised Stochastic Petri Net (GSPN) model of the system operation with its corresponding fault diagnostic Petri net model, created using the proposed modified Bayesian Stochastic Petri Net (mBSPN) formalism. The GSPN model establishes the causal relationships between the system’s components and/or subsystems. It further identifies deviations in the sensor measurements of the observable process variables characterising the system operation. The information provided by the sensors in the system model are then inputted into the mBSPN model to diagnose the root cause of the observed deviations. The obtained results demonstrated the capability of using the proposed integrated Petri net methodology for system condition monitoring, early fault detection and diagnosis of single and multiple failures in a dynamic system with feedback control loops.