Abstract. We consider a recently introduced new finite element approach for the discretization of elliptic partial differential equations on surfaces. The main idea of this method is to use finite element spaces that are induced by triangulations of an "outer" domain to discretize the partial differential equation on the surface. The method is particularly suitable for problems in which there is a coupling with a flow problem in an outer domain that contains the surface, for example, two-phase incompressible flow problems. It has been proved that the method has optimal order of convergence both in the H 1 and in the L 2 -norm. In this paper we address linear algebra aspects of this new finite element method. In particular the conditioning of the mass and stiffness matrix is investigated. For the two-dimensional case we present an analysis which proves that the (effective) spectral condition number of both the diagonally scaled mass matrix and the diagonally scalled stiffness matrix behaves like h −2 , where h is the mesh size of the outer triangulation.Key words. Surface, interface, finite element, level set method, two-phase flow AMS subject classifications. 58J32, 65N15, 65N30, 76D45, 76T991. Introduction. Certain mathematical models involve elliptic partial differential equations posed on surfaces. This occurs, for example, in multiphase fluids if one takes so-called surface active agents (surfactants) into account. These surfactants induce tangential surface tension forces and thus cause Marangoni phenomena [5,6]. In mathematical models surface equations are often coupled with other equations that are formulated in a (fixed) domain which contains the surface. In such a setting a common approach is to use a splitting scheme that allows to solve at each time step a sequence of simpler (decoupled) equations. Doing so one has to solve numerically at each time step an elliptic type of equation on a surface. The surface may vary from one time step to another and usually only some discrete approximation of the surface is (implicitly) available. A well-known finite element method for solving elliptic equations on surfaces, initiated by the paper [4], consists of approximating the surface by a piecewise polygonal surface and using a finite element space on a triangulation of this discrete surface, cf. [2,5]. If the surface is changing in time, then this approach leads to time-dependent triangulations and time-dependent finite element spaces. Implementing this requires substantial data handling and programming effort.In the recent paper [7] we introduced a new technique for the numerical solution of an elliptic equation posed on a hypersurface. The main idea is to use time-independent finite element spaces that are induced by triangulations of an "outer" domain to discretize the partial differential equation on the surface. This method is particularly suitable for problems in which the surface is given implicitly by a level set or VOF function and in which there is a coupling with a flow problem in a fixed outer domai...