An on-line modified least-squares identification algorithm is proposed for linear time-varying systems with bounded disturbances under relaxed excitation conditions. An extra term which enhances the tracking ability for time-varying parameters is added to the covariance’s update law. An indicator of the regressor’s excitation level based on the maximum eigenvalue of the covariance matrix is developed. By combining the maximum eigenvalue with its variation trend shown by the sensitivity of the maximum eigenvalue to change in the covariance matrix, a novel identification law, which is switched between a modified least-squares algorithm and a gradient algorithm based on fixed $\sigma $ -modification, is proposed. The boundedness of the estimation error and the covariance matrix are guaranteed via Lyapunov stability theory. The superiority of the proposed method is verified by simulations.