This paper proposed a new idea of using a large-mass varying-speed flywheel as an energy storage element to form a novel FACTS device called multi-functional Flexible Power Conditioner (FPC). The novel device consists of a double-fed induction machine (DFIM) and a voltage-source pulse width modulation (PWM) rectifier-inverter used as an AC exciter. By changing the speed of the rotating machine, the kinetic energy stored in the rotor with the flywheel will be changed. With an appropriate control strategy, it is able to realize an independent active and reactive power exchanging between the FPC and the grid. Similar to that of the Superconducting Magnetic Energy Storage (SMES), the FPC can be used to improve the stability of power system as well as the quality of power supply. Additional advantage of the FPC over the SMES based device is that it is easy to develop and to operate. Therefore, the cost will be greatly reduced. In order to increase performance of the proposed device, an improved stator flux linkage orientated control strategy for FPC is proposed in the paper. Simulation result of applying the proposed device in a two-machine and an infinite bus system shows that the proposed control provides excellent dynamic characteristics. Very encouraging results are obtained.