A subspace enhancement algorithm using the masking property is proposed. The proposed algorithm minimizes the signal distortion while constraining the energy of the residual noise below the human psychoacoustic masking threshold. This requires simple transformation of the masking threshold from the Fourier domain to the Karhunen-Loève (KL) domain. The proposed method incorporates subband whitening filters in the KL domain in order to deal with colored noise. Performance test results show that the proposed algorithm is superior to the spectral subtraction and the subspace method suggested by Y.Ephraim et. al.