With the rapid development of cities and the increasing complexity of distribution network systems, the cableization of transmission lines and the diversification of power users have brought new challenges to the supply reliability of distribution networks. Short-time outages caused by power outages and maintenance are one of the factors that affect the reliability of the power supply in the distribution network. The non-stop load transfer through a phase-shifting transformer (PST) operation can effectively improve the reliability of power supply to complex distribution systems. Considering the operation mode and structure form and fault type of the urban distribution network in China, comparing and analyzing the applicable scenarios of different neutral grounding methods, and based on the structure and zero sequence path characteristics of PST, an improved PST-based phase shifting and grounding transformer loop closing device with low power consumption is proposed. The fault characteristics of the PST-based loop closing device under the small current grounding system are also analyzed by the sequence component method, and, finally, the effectiveness of the phase-shifting and grounding transformer device is verified by simulation under PSCAD/EMTDC for fault routing and protection configuration of the urban distribution network in China.