Boundary contour, a meaningful external representation of area of interest, is widely used in many manufacturing applications (e.g., part machining, rapid prototyping, cutting and packing of irregular shape patterns, and geometrical reconstruction), and appearing on an image, in many cases, are nests of interconnected contours that their information is typically required prior to subsequent manufacturing operations being performed. Presented in this paper is a new contour tracing algorithm for extracting nests of interconnected contours. The algorithm is capable of recognizing junctions between contours sharing common edges and of recommending, among alternatives, a path to proceed to obtain all interconnected contours. Morphological operations have been applied instead of component labeling to achieve the locations of nested contours on an image. The input to the algorithm is a binary image of 1-pixel-wide closed contours, and the outputs are ordered sequences of boundary pixels representing all closed contours. The algorithm has been implemented on LabVIEW, experimented with several contour patterns, and demonstrated its application in manufacturing.