This paper presents an enhanced dynamic causal digraph reasoning method for fault diagnosis and its application to the short circulation process of a paper machine. In order to improve the isolation capability of the original method, an inference mechanism between the arcs of the graph is proposed to locate process faults on the arcs. Application of the proposed method to the paper machine short circulation process is presented at the end of the paper. The results show that the proposed method is able to identify the responsible arcs when the system is affected by a process fault.