We propose a novel approach for building a type-2 neural-fuzzy system from a given set of input-output training data. A self-constructing fuzzy clustering method is used to partition the training dataset into clusters through input-similarity and output-similarity tests. The membership function associated with each cluster is defined with the mean and deviation of the data points included in the cluster. Then a type-2 fuzzy Takagi-Sugeno-Kang IF-THEN rule is derived from each cluster to form a fuzzy rule base. A fuzzy neural network is constructed accordingly and the associated parameters are refined by a hybrid learning algorithm which incorporates particle swarm optimization and a least squares estimation. For a new input, a corresponding crisp output of the system is obtained by combining the inferred results of all the rules into a type-2 fuzzy set, which is then defuzzified by applying a refined type reduction algorithm. Experimental results are presented to demonstrate the effectiveness of our proposed approach.