My handbook states that i must not exceed 1500rpm in low range.

Read it again: The manual states you must not exceed 1500 rpm when SWITCHING IN TO (or out of) LOW RANGE. Once you are IN low range you can....
The vehicle must also be at a complete standstill.
Various unwarrantable crunching noises may result-do NOT attempt!

Gilly

__________________
Click here to see the items I have up for auction at EBay

Click here to see a photo album of my '62 Sprite Project Moneypit (Now Sold)

Gilly, My mistake, i mis-read.

Real deal answer from someone with the exact same issue that you have. The motor that moves the gearing in the transfer case is shot. Costs somewhere around 500 to replace. I just let the light blink as I take mine offroad often and have only used low range once. Hope this helps-

Chris Warner, 2Lt, USAF
AC-130 Pilot

There can be other reasons for this, on the earlier ones it pays to find out if the low range module has been updated, and if so if it's the most current module, as some of the early replacement modules were prone to the same light blinking problem.
The normal failure of the low range motor isn't the motor itself but the switch (contacts) in the motor which indicate to the control module if the tx case is in low range or not. It's easy to replace.
Gilly

__________________
Click here to see the items I have up for auction at EBay

Click here to see a photo album of my '62 Sprite Project Moneypit (Now Sold)

I have a 2002ML320 and mine has done this off and on since I have had the car. Every time I have it serviced I mention this and they check/fix it. Of course it starts happening again, this last time (2 days ago) this is what is says on my repair sheet:

Cause: electrical
282330 Low Range Switchover Motor, R & R/REPL.
492 WM 93
1 163-540-08-88 electric mot

I am not really sure what that means, but once again the problem was fixed. I will just wait and see how long this lasts...

When engaged in low range, the transfer case emits whining high pitched sound in motion. is this normal?

And strangely mine became shot after they "upgraded" it. This seems weird to me. Sorry for spreading the bad vibes, Gilly...I hope that all if forgiven as I do respect everything your experience...just trying to throw a little of what worked for me in the past on here every once in a while. And I will be more observant of the dates

The later 163 ml car's transfer case motor loses synchronization and needs to be reset. I don't think this applies to the earlier cars but you can try it anyway. There is a dtb out about it. Start your car and put on the parking brake. Put your ML in neutral and press the low range switch. Your light will blink 5 times then go out. Now take your foot off the brake and push the switch again. The light should blink 5 times and now stay on indicating that your car is in the low range. This somehow resets/ resynchronizes the transfer case motor position. I believe there is a software fault of some kind, and the motor doesn't know where it's at and loses position. Try this and let me know how you guys make out. I'm pretty sure that this is the procedure, but I'll double check tomorrow at work. Hope this helps.