The use of permanent MAGNETs in the structure of electric machines, in addition to simplifying design and construction by reducing losses, leads to increased efficiency in the motor. However, the MAGNETic material can be damaged by failure caused by faults such as short circuits in the electronic driver of the motor. MAGNETs containing samarium and neodymium are completely brittle and easy to crack. These elements are also very vulnerable due to their crystalline structure and grain texture. MAGNET defect fault is one of the most common faults in permanent MAGNET machines. In this paper, a permanent MAGNET synchronous motor (PMSM) with a MAGNET defect fault is simulated using the finite element method. Moreover, Prony's method is modified by the matrix pencil method for the estimation of the component created in the stator current. The frequency spectrum of MAGNETic flux density and stator current in both faulty and healthy modes are extracted and fault detection is done through a modified Prony's method.