Structural damage assessment under external loading, such as earthquake excitation, is an important issue in structural safety evaluation. In this regard, appropriate data analysis and feature extraction techniques are required to interpret the measured data and to identify the state of the structure and, if possible, to detect the damage. Among these techniques tracking modal parameters and estimating the structural current state from its seismic response measurement can provide useful information for structural safety assessment, therefore, on-line or recursive identification technique needs to be developed for structural seismic response monitoring. In this paper, the recursive subspace identification algorithms based on matrix inversion lemma algorithm (RSI-Inversion) with oblique projection technique was developed. Forgetting factor with enlarge window is introduced in the RSI-Inversion to emphasize the latest state of the time-varying system in this method. In addition to identifying the instantaneous dynamic characteristics of the structural system using RSI, a two-stage damage detection algorithm incorporated with the identified results from RSI will also be applied to localize and quantify the structural damage. Seismic responses of a base-isolated bridge are used to verify the proposed identification and the damage assessment algorithms, i.e. specify its corresponding damage location, the time of occurrence during the excitation, and the percentage of stiffness reduction.