An efficient finite–discrete element method applicable for the analysis of quasi-static nonlinear soil–structure interaction problems involving large deformations in three-dimensional space was presented in this paper. The present method differs from previous approaches in that the use of very fine mesh and small time steps was not needed to stabilize the calculation. The domain involving the large displacement was modeled using discrete elements, whereas the rest of the domain was modeled using finite elements. Forces acting on the discrete and finite elements were related by introducing interface elements at the boundary of the two domains. To improve the stability of the developed method, we used explicit time integration with different damping schemes applied to each domain to relax the system and to reach stability condition. With appropriate damping schemes, a relatively coarse finite element mesh can be used, resulting in significant savings in the computation time. The proposed algorithm was validated using three different benchmark problems, and the numerical results were compared with existing analytical and numerical solutions. The algorithm performance in solving practical soil–structure interaction problems was also investigated by simulating a large-scale soft ground tunneling problem involving soil loss near an existing lining. Copyright © 2011 John Wiley & Sons, Ltd.