Inter-area transfer power is a key factor affecting the damping of electromechanical oscillation. This paper presents an output-only based inter-area transfer capability (ITC) assessment method considering small signal stability constraint. Based on the construction of an equivalent two-machine system (ETmS) of an interconnected power grid, the measurements-based approach for estimating the parameters of the ETmS was studied. Then, we developed an optimization model with a maximum ITC target and damping as constraint. Under the premise of using recursive adaptive stochastic subspace identification (RASSI) to extract the oscillation modes (frequency and damping) from the ambient data, the optimization model was solved by employing the particle swarm optimization (PSO) algorithm. The effectiveness of the proposed approach was demonstrated using numerical simulations on the IEEE 16-machine 68-bus test system and measured data from a real system.