With high power Virtual Synchronous Generator (VSG)-based Voltage Source Converter (VSC) and low switching frequency, time delay has become a big issue affecting VSC stability and dynamic response in islanded mode. In this paper, effect of time delay on output impedance is analyzed and a hybrid derivative feedback control is proposed to improve system stability and dynamic response. First step, derivative feedback compensator of control variable is adopted to improve system stability and then, derivative feedback equation of state variable is adopted to improve dynamic response. Time delay is also discussed and compensated to improve dynamic response furthermore. The control method is verified by both analytical model, time simulations and experiment results.