A method of designing a digital hearing aid suitable for sensorineural hearing loss with a narrow audible range is proposed. The input signal is divided into short-time blocks (8 ms), and its spectrum is calculated using short-time fast Fourier transforms. The frequency-gain characteristic of the block is determined using the calculated spectrum and loudness compensation functions which describe the relation between the loudness perceived by normal listeners and that perceived by an impaired listener. The input signal within the block is processed by a single digital filter using the calculated gain characteristics. This algorithm is realized using a digital signal processor. The results of monosyllabic speech tests that the scores of the speech test for the proposed system were improved over a wide range of input levels compared with those for the linear system for 9 of 13 sensorineural impaired subjects.