The deficiencies of conventional neighbouring coefficients denoising are the invariant neighbouring window size and the global threshold; therefore, it cannot accurately represent local concentrated energy of the collected signals in engineering application. The improved neighbouring coefficients named Neighbouring Coefficients Dependent on Level (NCDL) is proposed. The size of neighbouring window varies with different decomposition levels and the threshold is chosen according to the neighbourhood. Translation invariant method can effectively weaken some visual artifacts, for example Gibbs phenomena in the neighbourhood of discontinuities. Multiwavelets have two or more scaling and wavelet functions. Compared with scalar wavelet, multiwavelets offer several excellent properties such as symmetric, orthogonal, compactly support and higher order of vanishing moment. A novel denoising method - translation invariant multiwavelet denoising with improved neighbouring coefficients is presented. The simulation signal proves the validity of the presented method. This method is then applied to the fault diagnosis of a locomotive rolling bearing. The results show that the present method can effectively extract the fault characteristic frequency of a slight scrape on the outer race of the rolling bearing.