A lumped parameter model of Li-ion battery in hybrid electric vehicle(HEV) is constructed and system parameters are identified by using recursive least square estimation for different C-rates, SOCs and temperatures. The system characteristics of pole and zero in the frequency domain are analyzed with the parameters obtained from different conditions. The parameterized model of a Li-ion battery indicates highly dependent of temperatures. To estimate SOC and polarization voltage, a Luenberger state observer is utilized. The P- or PI-gains of observer based on a suitable natural frequency and damping ratio is adopted for the state estimation. Satisfactory estimation accuracy of output voltage and SOC is especially obtained by a PI-gain. The feasibility of the proposed estimation method is verified through experiment under the conditions of different C-rates, SOCs and temperatures.