Modular multilevel converter (MMC) based HVDC transmission systems received wide acceptance in industry due to their excellent steady state performance resulting from su perior harmonic performance and high operating efficiencies. But, with the traditional cascaded PI control structure in the circulating current control loop, MMC suffers from poor dy namic performance. This is due to the slower outer average submodule voltage control loop resulting in significant deviation in submodule capacitor voltages during load transients. This paper presents a new control structure with a Lyapunov function- based controller (LFC) in conjunction with PI controller in the inner circulating current loop and an additional load current feed forward loop in addition to the outer voltage loop to improve dynamic performance of MMC. LFC ensures a stable operation and superior dynamic performance of the converter against load disturbances. Analytical equations governing the design of the controller is presented. Average model of a 300 MW, 400 kV MMC based HVDC system is developed on a PLECS simulator. Simulation results are presented to substantiate the improvement in dynamic performance of MMC based HVDC system with the proposed Lyapunov function based circulating current controller. © 2017 IEEE.