The invention discloses an area differential protection system and method reflecting an inter-phase fault of a power distribution network. The device is mounted in each bus, and an RS485 bus reads data information of each incoming/outgoing wire in the bus; different area protection devices communicate with each other via fibers; and the area differential protection device with most branch lines inthe bus serves as a main station. The method comprises that the area differential protection device with most branch lines in the bus is selected as the main station; real-timeline operation data collected by the area differential protection device in the line is exchanged mutually among different area differential protection devices; the area differential protector makes determination when the detected single-phase current abrupt change amount is higher than a setting value; fault information is sent when the minimal action differential current is greater than or equivalent to 0.7 time of the sum of a brake current and a load current; and the fault information is sent to the main station to construct a fault information matrix A. Thus, a fault of the power distribution network is detected and the inter-phase fault is isolated rapidly efficiently.