In scan test environment, designs with embedded compression techniques can achieve dramatic reduction in test data volume and test application time. However, performing fault diagnosis with the reduced test data becomes a challenge. In this paper, we provide a general methodology based on circuit transformation technique that can be applied for performing fault diagnosis in the context of any compression technique. The proposed methodology enables seamless reuse of the existing standard ATPG based diagnosis infrastructure with compressed test data. Experimental results indicate that the diagnostic resolution of devices with embedded compression is comparable with that of devices without embedded compression.