This paper presents a novel methodology for flowsheet synthesis of power plants. In this new method, thermodynamic analysis and mathematical programming are combined by taking advantage of these two methods. A level-by-level approach is adopted in this method in order to reduce the mathematical complexity and computational difficulty of a design problem. More importantly, this approach provides good opportunities for user interaction. In the first level of flowsheet synthesis, an initial superstructure is constructed which embeds several possible design options. This superstructure is formulated to give a so-called master model, in which major subsystems of a plant are modelled in relatively simple models. Major aspects and key variables are taken into account in the master model and optimisation of this: model gives an initial flowsheet. Following that, thermodynamic analysis is applied to identify relevant structural modification options to the flowsheet. These options are added to the master model superstructure, which is optimised to get an improved design. This loop of optimisation and analysis is carried out until no desirable improvement can be made. The results from the above design process provide the scope and requirements for the conceptual design of the subsystems. If it is impractical for a conceptual design to satisfy the requirements derived from the overall plant context, an updating mechanism is provided to either introduce additional constraints or alternative practical designs to the master model. The master model is then optimised again and a new conceptual design is carried out. This optimisation and design process terminates when the conceptual design can meet the design requirements determined by the master model. As a result of applying this method, an optimal design can be achieved with confidence even for large industrial problems,