I have a 1999 GM SLT half ton with the NP 246 transfercase.. It seems to work fine in 4x4 and shift in/out fine until you drive it up to highway speed (in 4x4) as shortly after i let off the gas and start to decelerate it gives me a 4wd service light and refuses to shift out of 4x4 until I turn the truck off and turn it back on.

The previous transfer case was completely mangled and this one I just put in came out of a 2001 GM...

Like i said it works perfectly fine until I get it up to road speed. 80+km/hr (45+mph)

Ideas?... Oh i did try change the switch with the one out of my 2001 part truck (no difference).

 

Since you have a parts truck trying replacing the T/C module located behind dash on the left side. Hard to get out but just keep moving it around and it will come out. Normally not bolted or screwed down.

 

Well I ended up doing my own diagnosing since i didnt realize i had a reply.. Changed the front output shaft sensor on the transfer case..

Works like a charm now.. I guess the ECM didn't have any idea how fast the driveshaft was spinning and was coding because of it.

Thanks a lot though!