A new shunt reactor protection principle is proposed based on the parameter identification method. The values of resistance and inductance are calculated firstly. Then according to the relationships between the parameter directions and the magnitudes of impedances in the internal and external faults respectively， the direction of faults are determined. Because the values of resistance and inductance are not related to the system frequency， and the method is of differential equation， it is not affected by the system frequency change or oscillations，and the non-periodical components have little influence on the results. Dynamic simulation results demonstrate that the method can overcome the shortcomings of the traditional reactor protection， especially the problem of operating dead zone when internal turn-to-turn fault occurs. The method features simplicity， high reliability and fast reaction speed.