In this paper, we develop a novel extended state observer (ESO), in terms of tracking error only, for output tracking of a class of multi-input multioutput systems with mismatched uncertainty. A novel ESO is constructed from the nonsmooth function "fal" to estimate both uncertainty and state of the system. An ESO-based output feedback controller is then designed to compensate (cancel) the uncertainty and to achieve the output tracking. The convergence of the closed-loop system is proved. The effectiveness of the proposed method is demonstrated by numerical results of trajectory tracking for a practical autonomous underwater vehicle model. We show that in the presence of measurement noise, this novel ESO leads to better performance than the linear ESO. Moreover, this type of ESO has much smaller peaking value than the linear ESO under the same tuning gain.