The invention provides a modular multilevel converter and a high-voltage valve set grounding fault protection method thereof. The modular multilevel converter and the high-voltage valve set grounding fault protection method thereof have advantages of simple structure, low cost, convenient control and accurate protection value setting. The modular multilevel converter comprises high-voltage valve sets and low-voltage valve sets which are connected in series at a DC side and are parallelly connected at an AC side. Each phase of the high-voltage valve set and the low-voltage valve set is composed of an upper bridge arm and a lower bridge arm. The upper bridge arm and the lower bridge arm are respectively obtained through cascading a plurality of blocking type sub-modules and a plurality of half-bridge sub-modules, or cascading a plurality of blocking type sub-modules. The upper bridge arm and the lower bridge arm are respectively provided with a bypass which is switched on or switched off by a thyristor. When a grounding fault of the high-voltage valve set occurs, fault current flows over the bypass through applying a triggering signal to the thyristor in the bypass, thereby preventing charging to a capacitor of the sub-module by the fault current through the sub-module. Through the bypass which is formed in correspondence with each bridge arm, when the grounding fault of the high-voltage valve set occurs, overvoltage protection can be realized for the sub-module through reasonably controlling the switching state of the thyristor in the bypass.