The invention relates to a device and method for limiting a short circuit fault current of the power grid. The device includes a first isolation knife gate, a series reactor, a capacitor bank, a second isolation knife gate, a bypass breaker, a lightning arrester, a damping reactor, a power electronic solid state switch and a bypass isolation knife gate, wherein the first isolation knife gate, theseries reactor, the capacitor bank and the second isolation knife gate are connected in series in order, the damping reactor is connected in series with the power electronic solid state switch, a series branch composed of the damping reactor and the power electronic solid state switch, the bypass breaker and the lightning arrester are connected in parallel at both ends of the capacitor bank, the first isolation knife gate, the series reactor, the capacitor bank and the second isolation knife gate form a series branch circuit connected with the bypass isolation knife gate at both ends. The device is connected with a neutral point side of a power grid transformer, which can effectively limit the short circuit current when a short-circuit fault occurs in the power grid, and safe operation ofthe power grid is guaranteed.