This paper presents a dynamic simulation algorithm for studying the effect of United Power Flow Controller(UPFC) on the low frequency power system oscillations and transient stability studies. The proposed algorithm is a Newton-type one and uses current injection type UPFC model, which gives a fast convergence characteristics. The algorithm is applied to studying inter-area power oscillation damping enhancement of a sample two-area power system both in time domain and frequency domain. The case study results show that the proposed algorithm is very efficient and UPFC is very effective and robust against operating point change.