We consider the problem of internally stabilizing and simultaneously diagonally decoupling a linear multivariable system by unity output feedback compensation. A sufficient condition is derived for the existence of a cascade proper compensator 

 such that when employed in a unity feedback loop involving the proper transfer function matrix P
oof a free of unstable hidden modes system 

 , will not only internally stabilize the feedback closed-loop system 

 but will also give rise to a closed-loop transfer function matrix 

 , which is nonsingular, diagonal, and has desired poles. Based on this analysis, an algorithmic procedure for the computation of such a compensator is presented.