With requirements for on-board diagnostics on diesel engines becoming more stringent for the coming model years, diesel engine manufacturers must improve their ability to identify fault conditions that lead to increased exhaust emissions. This paper proposes a statistical classifier model to identify the state of the engine, i.e. healthy or faulty, using an optimal number of sensors based on the data acquired from the engine. The classification model proposed in this paper is based on Sparse Linear Discriminant Analysis. This technique performs Linear Discriminant Analysis with a sparseness criterion imposed such that classification, dimension reduction and feature selection are merged into one step. It was concluded that the analysis technique could produce 0% misclassification rate for the steady-state data acquired from the diesel engine using five input variables. The classifier model was also extended to transient operation of the engine. The misclassification rate in the case of transient data was reduced from 31% to 26% by using the steady-state data trained classifier using thirteen variables.