The ability to characterise corrosion and gouging associated with metal loss and the identification of gouge type from metal loss defect types are two of the primary obstacles affecting magnetic flux leakage (MFL) internal inspection technology. Gouges in pipelines are not extraordinarily severe; however, the depth of corrosion increasing due to a certain corrosion rate can be quite serious. In this paper, a novel theoretical model combined with a new approach for the analysis of the signals that distinguish gouging and corrosion using a low magnetisation level is presented for MFL detection, since the traditional MFL internal detection tools are insensitive to stress characteristics in the case of saturation magnetisation. A two-stage finite element (FE) model for the prediction of magnetic flux leakage resulting from two types of defect is built. In the first stage, the stress distribution associated with gouging is obtained from a solid mechanics model and, in the second stage, the stress distribution is incorporated into a magnetic finite element model by mapping the stress levels to permeability. The possibility of detection and identification of corrosion and gouging using the MFL technique at low-level magnetisation was confirmed by experimentally comparing the characteristics of the MFL signals for each defect type.