The invention relates to the technical field of railway signals and discloses a movable blocking downgrading operation system and method. According to the system, a plurality of axle counters are arranged on arrival signal machines and a plurality of pass signal machines of two adjacent stations correspondingly, wherein the multiple pass signal machines are arranged in the interval formed by the arrival signal machines to divide the interval into a plurality of sections, and the axle counters detect whether each section is idle or not; according to the detecting results of the axle counters of the corresponding sections, the pass signal machines display indicating signals; a plurality of railway circuits are arranged in the preset range travelled when a train arrives at the pass signal machines, and train control codes are sent according to the indicating signals displayed by the corresponding pass signal machines; and train-mounted equipment receives the train control codes and controls the train to operate according to the train control codes. The movable blocking downgrading operation system and method are mainly applied to the movable blocking failure condition, thus under the condition, the operation safety of the train can still be ensured, and the train has the certain transporting efficiency and capacity; and meanwhile the engineering cost is reduced.