The invention discloses a method for identifying degeneration of a lithium battery and a degeneration warning system. The method adopts the analysis method of the degree of discretization of array, and considers a plurality of physical quantities as one array so as to identify the stage of discretization of the array. The physical quantities include the over-circuit voltage of a battery and the environment temperature of the battery, the discharge rate of the battery, and the capacity discharged by the battery. The system detects working current or the current, the voltage and the temperature of a battery pack by a detection apparatus, calculates the discharge capacity and the over-circuit voltage and the environment temperature prior to the discharge on the basis of the average discharged current and the accumulation of discharge time; transmits the discharge capacity, the over-circuit voltage and the environment temperature to an upper computer for conducting degeneration coefficient calculation and transmits the calculation value to a lower computer, and if the degeneration coefficient exceeds a threshold value, gives a warning. According to the invention, the method and the system provide rapid evaluation and identification to rapidly-charging circuit, equalizer circuit and management system of the battery and provide basis for cascade utilization and service life extreme alternation of the battery.