The hollow hydraulic motor is a key assembly unit for inner frame driving of multi-axis huge inertia motion flight simulator. However the large friction caused by its special structure seriously influences the tracking performance and positioning precision of the servo system especially at very low velocity. A mathematical model of the valve-based hollow hydraulic motor servo system was established. The friction state observer was proposed based on the LuGre dynamic friction model. On this basis, the sliding mode variable structure control algorithm with friction state observer was developed to compensate the friction torque, and the experiment was carried out. The result shows that the proposed state observer can estimate the friction torque correctly, and compared to that without observer, the sliding mode controller with observer can get more precise trajectory tracking. 