This paper proposes a novel method for sensor allocation based fault tolerant control. Fault tolerance is achieved with optimal combination of healthy sensor sources while the baseline controller remains unchanged. The measurements are subjected to various sensor dynamics, hence the resulting sensor allocation framework is also dynamic. The proposed approach can fit into a hierarchical fault tolerant control framework, where certain sensor faults are handled by the lower level allocation while more severe faults are handled by controller reconfiguration. The decision of which reconfiguration level has to be initiated in response to a fault is determined by a supervisor unit. The method is demonstrated on the simulation model of the Nasa AirStar test vehicle.