A hybrid power transmission system (HPTS) is a promising way to save energy in a hydraulic excavator and the electric machine is one of the key components of the system. In this paper, a design process for permanent-magnet synchronous machines (PMSMs) in a hybrid hydraulic excavator (HHE) is presented based on the analysis of the working conditions and requirements of an HHE. A parameterized design approach, which combines the analytical model and the 2D finite element method (FEM), is applied to the electric machine to improve the design efficiency and accuracy. The analytical model is employed to optimize the electric machine efficiency and obtain the stator dimension and flux density distribution. The rotor is designed with the FEM to satisfy the flux requirements obtained in stator design. The rotor configuration of the PMSM employs an interior magnet structure, thus resulting in some inverse saliency, which allows for much higher values in magnetic flux density. To reduce the rotor leakage, a disconnected type silicon steel block structure is adopted. To improve the air gap flux density distribution, the trapezoid permanent magnet (PM) and centrifugal rotor structure are applied to PMSM. Demagnetization and armature reactions are also taken into consideration and calculated by the FEM. A prototype of the newly designed electric machine has been fabricated and tested on the experimental platform. The analytical design results are validated by measurements.