The aim of the online nonlinear system identification is the accurate modeling of the current local input-output behavior of the plant without using any prior knowledge and offline modeling phase. It is a challenging task for many intelligent systems when used for real-time control applications. In this paper, we propose a novel computationally efficient extended fuzzy functions (EFF) model for system identification of unknown nonlinear discrete-time systems. The main contributions are to introduce an effective quasi-nonlinear model (EFF) and propose adaptive learning rates (ALR) for recursive least squares (RLS) and gradient-descent (GD) methods. The asymptotic convergence of the modeling errors and boundedness of the parameters are proved by using the input-to-state stability (ISS) approach. Numerical simulations are performed for Box-Jenkins gas furnace system and a nonlinear dynamic system. The benefits of its accuracy, stability and simple implementation in practice indicate that EFF model is a promising technique for online identification of nonlinear systems. Copyright (C) 2010 John Wiley & Sons, Ltd.