This paper investigates existence and stability conditions of fuzzy functional observer for Takagi-Sugeno (T-S) fuzzy model. A new set of necessary and sufficient conditions are provided for the existence of the observer with reduced order matrices. Then Lyapunov function is used to find stability condition of the observer. Stability conditions are derived in linear matrix inequalities (LMIs) form, which can be used to find the observer gain and form part of the design procedure for the fuzzy functional observer.