The impact of High voltage direct current (HVDC) transmission on power system dynamic stability is mainly discussed in this paper and the system dynamic response is analyzed under small disturbance. The establishment of linearized model of a single machine infinite bus (SMIB) system equipped with Voltage source converter (VSC) based HVDC is also presented in this paper. Generally, power system dynamic stability is maintained by PSS which may adversely affect the voltage profile. HVDC based damping controller can be an effective solution to this problem which is designed using phase compensation technique to enhance damping of low frequency oscillations. The performance and effectiveness of the proposed controller is demonstrated through eigen value analysis and non linear time domain simulations. Moreover the performance of the controller with different control input signals is evaluated and most effective control input is determined. Simulation results carried by MATLAB show the effectiveness of proposed control mechanism to strengthen the system dynamic stability.