PurposeTo develop a new method for estimation of damage configuration in composite laminate structure using acoustic wave propagation signal and a reduction‐prediction neural network to deal with high dimensional spectral data.Design/methodology/approachA reduction‐prediction network, which is a combination of an independent component analysis (ICA) and a multi‐layer perceptron (MLP) neural network, is proposed to quantify the damage state related to transverse matrix cracking in composite laminates using acoustic wave propagation model. Given the Fourier spectral response of the damaged structure under frequency band‐selective excitation, the problem is posed as a parameter estimation problem. The parameters are the stiffness degradation factors, location and approximate size of the stiffness‐degraded zone. A micro‐mechanics model based on damage evolution criteria is incorporated in a spectral finite element model (SFEM) for beam type structure to study the effect of transverse matrix crack density on the acoustic wave response. Spectral data generated by using this model is used in training and testing the network. The ICA network called as the reduction network, reduces the dimensionality of the broad‐band spectral data for training and testing and sends its output as input to the MLP network. The MLP network, in turn, predicts the damage parameters.FindingsNumerical demonstration shows that the developed network can efficiently handle high dimensional spectral data and estimate the damage state, damage location and size accurately.Research limitations/implicationsOnly numerical validation based on a damage model is reported in absence of experimental data. Uncertainties during actual online health monitoring may produce errors in the network output. Fault‐tolerance issues are not attempted. The method needs to be tested using measured spectral data using multiple sensors and wide variety of damages.Practical implicationsThe developed network and estimation methodology can be employed in practical structural monitoring system, such as for monitoring critical composite structure components in aircrafts, spacecrafts and marine vehicles.Originality/valueA new method is reported in the paper, which employs the previous works of the authors on SFEM and neural network. The paper addresses the important problem of high data dimensionality, which is of significant importance from practical engineering application viewpoint.