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This study establishes a new basis for understanding the stability of power hardware‐in‐the‐loop (PHIL) systems considering their hybrid (analogue/digital) nature. Such systems are known to have closed‐loop stability issues due to delays between the simulator and the power amplifier (PA). This work demonstrates that the conventional method for determining the stability criterion, which considers the system as a continuous model, is not appropriate. A new method of assessing the stability of a PHIL system based on discrete‐time impedance frequency responses is thus presented. Hydro‐Québec's Research Institute will use this innovative approach for the development of its own PHIL system, which will involve connecting the institute's real‐life experimental distribution test line to its large‐scale real‐time digital simulator through a 25‐kV, 10‐MVA PA. The validity of the new method is demonstrated for simulation models of a well‐known inductive system and of a distribution feeder connected to a large‐scale power system. [ABSTRACT FROM AUTHOR]