This paper investigates limit cycling behavior of observer-based controlled mechanical systems with friction compensation. The limit cycling is induced by the interaction between friction and friction compensation, which is based on the estimated velocity. The limit cycling phenomenon, which is experimentally observed in a rotating arm manipulator, is analyzed through computational bifurcation analysis. The computed bifurcation diagram confirms that the limit cycles can be eliminated by enlarging observer gains and controller gains at the cost of a steady state error. The numerical results match well with laboratory experiments