Optimal sensor fault-accommodation is considered for faults modelled by an increase in measurement noise. This noise is taken to be bounded and its probabilistic properties unknown. It is assumed that intelligent (e.g. self-validating) instrumentation is in use and estimates of the noise bounds are available. The fault-tolerant controller is designed to optimize a noise rejection and a nominal reference tracking index and leads to a mixed norm minimization problem (l(1)/l(2)). We exploit known results and a particular feedback configuration to show that it is possible to optimize simultaneously without a trade-off the two performance indices. The results are applied to systems where the presence of auxiliary measurements allows for an optimal fault-accommodation strategy. Using properties of the optimal solution, we define a factorization for the optimal controller alternative to the Youla parametrization, leading to an algorithm which is optimal, transparent and efficient. (C) 2003 Elsevier Science Ltd. All rights reserved.