Abstract: The dynamic characteristics and stability mechanism of a VSG grid-connected system are not sufficiently clear because of the interaction between the different timescale controls of the VSG. A time constant was selected as the leading feature to solve this problem. The critical factors influencing the interaction between the inner and outer rings were extracted, and a reduced-order model of a VSG grid-connected system was established. The established reduced-order model was further linearized at the equilibrium point to obtain a similar Heffron–Phillips stability analysis model. Based on the damping torque method, the oscillation characteristics of the VSG grid-connected system at different inner loop control parameters and grid strengths were analyzed. The oscillation modes introduced by the interaction between the inner and outer loops and the electromagnetic transient interaction of the line and its key influencing factors were further analyzed. Finally, a model was established in Matlab/Simulink, and the effectiveness of the reduced-order model and the correctness of the theoretical analysis of VSG grid-connected oscillation characteristics, considering the interaction between the inner and outer loops, were verified.