Early fault detection and isolation in industrial systems is vitally necessary to prevent any potential product damage. The paper proposes a new decentralized multi-unit fault isolation methodology in which all the known process faults with similar time signatures are grouped into appropriate categories. An innovative genetic algorithm-based method is introduced to explore for optimum plant zones in a large-scale plant wide search to appropriately configure each architectural unit, having less reliance on excess process variables with redundant and uncorrelated diagnostic information. The methodology employs a set of Bayes and radial basis function neural network classifiers to properly isolate the most usual known faults. A new idea based on transfer entropy algorithm has been integrated in the decentralized configuration to be triggered for isolation of novel faults which have been left unrecognized by the set of maintained classifiers. Experimental results clearly demonstrate that the proposed methods are considerably superior to the conventional centralized methods.