To detect the malicious meters committing electricity theft in a neighborhood area smart grid, in this paper, a novel inspection algorithm, termed as the Binary-Coded Grouping-based Inspection (BCGI) algorithm, is proposed. In the proposed algorithm, each meter is identified with a unique binary-coded number. The BCGI algorithm can locate the unique malicious meter (if any) by one inspection step under the assumption that at most one meter becomes malicious in one reporting period. Furthermore, by controlling the reporting periods of meters, we could make the probability of the event that at most one meter becomes malicious in one reporting period arbitrarily close to 1 under some assumptions. We further extend the algorithm into a Generalized BCGI algorithm (G-BCGI) to deal with the case that there are two or more meters which happen to commit the theft of electricity in one reporting period. Simulation results demonstrate the inspection efficiency of the BCGI and G-BCGI algorithms.