Partial discharge (PD) detection is an important tool for evaluating the insulation condition of high-voltage power equipment. This paper investigates a diagnostic system consisting of a magnetic sensor with dedicated electronic circuitry. The investigated sensor is based on the giant magnetoresistance (GMR) effect, which enables the possibility of contactless detection of magnetic fields caused by PD currents. However, the bandwidth of the circuitry can be a limiting factor. In order to exploit the bandwidth of an extra high-sensitivity adapted giant magneto-resistive (xMR) sensor, this paper describes dedicated designs for compensation and signal conditioning of the xMR signals. Typical performance has been evaluated, including frequency response and time-domain response to fast calibrator pulses by the xMR sensor with the implemented circuit. The results show that the xMR sensor with the implemented circuit covers a relatively broad bandwidth and can detect PD pulses with a minimum amount of 10 pC, preliminarily verifying its possibility to detect PDs. Using this xMR system, magnetic signals from an experimental model producing surface discharges have been detected and compared with simultaneously measured signals from a high-frequency current transformer (HFCT). The results show that the xMR system can measure the magnetic fields produced by the PD currents.