This paper presents a high-gain observer of the rotor position for the control of surface permanent magnet synchronous machines under loaded conditions, e.g., saturation. Determining the rotor flux position of permanent magnet AC machines under no load is simpler, since its flux and rotor position coincide. However under load and in the presence of saturation in particular, the flux is comprised of two components: one due to the rotor magnets and the other due to the stator current. This causes the magnetic axis to shift from the rotor position, which in turn causes an error in a control algorithm that uses conventional rotor position estimation. This paper characterizes this error through a nonlinear model of the machine and finite element analysis. Design and analysis of a general position observer algorithm for PMAC machines accounting for saturation is presented, along with its implementation for a control methods using back EMF measurement and high-frequency Injection. Experimental results validating the nonlinear model of the machine, existence of the saturation-induced error, and performance of the proposed observer are also given.