This paper presents a new tool for decentralized output-feedback control design of large-scale nonlinear systems in the presence of non-smooth sensor noise. Through a recursive control design approach, the closed-loop decentralized system is transformed into a network of input-to-state stable (ISS) systems and the influences of the sensor noise are represented by ISS gains. The decentralized control objective is achieved by applying the cyclic-small-gain theorem to the closed-loop decentralized system. Moreover, the outputs of the closed-loop decentralized system can be driven arbitrarily close to the levels of their corresponding sensor noise. (C) 2012 Elsevier Ltd. All rights reserved.