In the current study, a new adaptive Kalman filter (KF) algorithm with the filter gain correction for the case of malfunctions in the estimation system is presented. In the adaptive KF algorithm, the detected faulty measurements are regarded with small weight. As a result, faults in the estimation system are corrected by the system, without affecting the good estimation behaviour. The developed adaptive KF is applied to the integrated navigation system, consisting of inertial and radar altimeters. In the open loop system, the inertial altimeter is the main source of information, and radar altimeter provides discrete aiding data to support the estimations. In case of abrupt faults, the performance of the integrated system is examined.