<xsl:template match="/Root">
       <Root>
           <xsl:for-each select="Item">
              <xsl:sort select="Line_No" data-type="number" />
              <New_Item>
                 <xsl:variable name="x" select="substring(Line_No, 1,
1)" />		  <xsl:variable name="pow_result">
                     <xsl:call-template name="pow">
                         <xsl:with-param name="m"  select="10" />
	          <xsl:with-param name="n"  select="string-length(Line_No) -  1" />
                         <xsl:with-param name="result"  select="10" />
	      </xsl:call-template>
	  </xsl:variable>
	  <Line_No><xsl:value-of select=" ($x * $pow_result) +
count(preceding::Line_No[substring(., 1, 1) = $x] )+ 1" /></Line_No>
	  <Line_No_Og><xsl:value-of select=" Line_No" /></Line_No_Og>	
	  <Amount><xsl:value-of select="Amount" /></Amount>
              </New_Item>
           </xsl:for-each>
       </Root>
   </xsl:template>

   <!-- Template to calculate m to the power n -->
   <xsl:template name="pow">
       <xsl:param name="m" />
       <xsl:param name="n" />
       <xsl:param name="result" />

       <xsl:choose>
          <xsl:when test="$n &gt; 1">
              <xsl:call-template name="pow">
                  <xsl:with-param name="m"  select="$m" />
	   <xsl:with-param name="n"  select="$n -  1" />
                  <xsl:with-param name="result"  select="$result * $m" />
              </xsl:call-template>
          </xsl:when>
          <xsl:otherwise>
              <xsl:value-of select="$result" />
          </xsl:otherwise>
        </xsl:choose>
   </xsl:template>

Regards,
Mukul

Thanks Gandi. I tried your stylesheet and it is very good with just one problem: I need the renumbering to begin only for each 100th group; not each 10th group as your stylesheet does. For example:

801  --> 801  (begin 800 group)
802  --> 802
806  --> 803  (notice new Line_No is continuous, wheras original skipped)
814  --> 804  (NOTICE 800 series counting continues as we haven't reached next 100 series yet)
901  --> 901  (notice numbering re-starts at the 1s for a new group (900s))
944  --> 902  (NOTICE 900 series counting continues as we haven't reached next 100 series yet)
1002 --> 1001 (notice numbering re-starts at the 1s for a new group (1000s))
1003 --> 1002 (numbering continues consecutively in the 1000's group)

Thanks in advance.
rostom