This paper presents the modeling of the power system installed with the Interline Power Flow Controller (IPFC), the latest proposed Flexible AC Transmission System (FACTS) controller. The IPFC is modeled in d-q axis form, and the dynamic model of a single machine infinite bus (SMIB) power system installed with IPFC is developed. Further, the linearized Phillips-Heffron model of the power system is established to study the oscillation stability. The damping controllers considering the various control signals are designed based on the linearized model. The power oscillation stability is investigated with the use of eigenvalue analysis and by nonlinear simulation of the dynamic model of the power system. Studies reveal that the most effective input signal of IPFC utilized for damping the low frequency oscillations is found to be the input signal m2, providing robust performance under different operating conditions.