A system and method for defect analysis of multi-level memory cell devices and embedded multi-level memory in system-on-chip integrated circuits are disclosed wherein a defect data set is input into the system. When a defect data set is received, an automated test engineering system running a memory test program analyzes the defect data set to generate one or more fail bit locations and one or more fail states of the memory. The multi-level memory defect analysis system and method then classify failed bits or patterns comprising a vertical fail pattern, whereby after being classified, each memory cell failure vertical fail pattern has three data attributes comprising fail type, a number of fail bits / states, and a sequence of the fail states. The vertical fail pattern may comprise a single fail state or multi-state fail. The multi-state fail may be a continuous-states fail, discontinuous-states fail, or all-state fail. The multi-level memory defect analysis system and method may additionally enable classification of failed bits or patterns comprising a lateral fail pattern. The lateral fail pattern may be a gradual fail pattern, periodic fail pattern, or random fail pattern.