In this paper a new output feedback trajectory tracking controller for fully actuated ships is designed whenonly the position and the heading measurements are available. The considered 3 DOF ship model includes the Coriolisand Centripetal induced forces and moments and a nonlinear damping term. The gains of the constructed observer arenonlinear and time-variant, which can be used to globally dominate the difficult term resulting from the Coriolis andCentripetal term in the observer error dynamics. The acquired output feedback tracking control system is proveduniformly semi-globally exponential stable by applying nonlinear cascaded system theory. Furthermore, simulationstudies are carried out by utilizing Matlab’s Simulink Toolbox. Simulation results on a model ship Cybership II arepresented to validate the proposed output feedback tracking controller with a separate stability result for observer.