This paper presents the detailed modelling and simulation of the dynamic coupling in an autonomous underwater vehicle (AUV)-manipulator system, used for deep-sea intervention tasks. The interaction effects due to damping, restoring and inertial effects of a single degree of freedom (DOF) manipulator mounted on an underactuated AUV are analysed. The actuator and sensor dynamics of the system are also considered. The linear and angular position errors of the vehicle and the manipulator due to the interaction effects between them are also investigated and the results are presented. A model reference adaptive control (MRAC) scheme is proposed to compensate the above mentioned errors. The effectiveness of the proposed control scheme is demonstrated using numerical simulations along with comparative study between conventional proportional-integral-derivative (PID) control. The robustness of the proposed control scheme is also illustrated with numerical study in the presence of external disturbances and parameter uncertainties. © 2011 ICROS.