Wireless Sensor Network (WSN) is a multi-hop sensor network system in which sensor nodes are deployed in monitoring area to sense some environmental parameters. WSN is used to bridge the gap between physical world of humans and virtual world of electronics. WSNs have number of applications in daily life such as remote monitoring of environment, habitat, agriculture, health care, automobiles, and disaster prone zones. WSNs have characteristics such as limited resources, multi-hop routing and dynamic network topology. Clustering is introduced in WSN because it has proven to be an effective approach to provide better data aggregation and scalability for large WSNs. Clustering also conserves the limited energy resources of the sensors. This paper does comparative study of existing clustering algorithms in WSNs based on centralized, distributed or hybrid method and highlights the challenges in clustering. In addition we proposed a new clustering system which uses at most two-hop for intra-cluster communication. Reduction in number of clusters and CHs prolongs network lifetime. © 2015 The Authors.