In order to solve the false grounding phenomenon of medium voltage distribution network caused by the increase of grid investment construction scale and the automatic tuning of arc suppression coils, this paper analyzes the false grounding phenomenon and its causes on the basis of the failure of the arc suppression coil damping device of Dandong power grid. The system neutral point asymmetric voltage and unbalanced degree model are built, using the theory of three-phase voltage imbalance. The measures to reduce the distribution network neutral displacement voltage are given by analyzing the mechanism of neutral displacement voltage rise and false grounding. The greater the capacitance current of system, the smaller the arc suppression coil damping effect. According to this phenomenon, in combination with the practical situation of 220kV LangTou substation and 220kV Gangcheng substation, it is proved that the reasonable system operation mode can effectively reduce the imbalance of the conductor and reduce the displacement voltage of neural point by theoretical calculation and data comparison before and after the adjustment of operation mode. So the false grounding in 66kV system can be eliminated.