This paper presents an integrated treatment of the dynamic coupling between the flow field (aerodynamics) and rotor structural vibration (rotordynamics) in axial compression systems. This work is motivated by documented observations of tip clearance effects on axial compressor flow field stability, the destabilizing effect of fluid-induced aerodynamic forces on rotordynamics, and their potential interaction. This investigation is aimed at identifying the main nondimensional design parameters governing this interaction, and assessing its impact on overall stability of the coupled system. The model developed in this work employs a reduced-order Moore-Greitzer model for the flow field, and a Jeffcott-type model for the rotordynamics. The coupling between the fluid and structural dynamics is captured by incorporating a compressor pressure rise sensitivity to tip clearance, together with a momentum based model for the aerodynamic forces on the rotor (presented in Part I of this paper). The resulting dynamic model suggests that the interaction is largely governed by two nondimensional parameters: the sensitivity of the compressor to tip clearance and the ratio of fluid mass to rotor mass. The aerodynamic-rotordynamic coupling is shown to generally have an adverse effect on system stability. For a supercritical rotor and a typical value of the coupling parameter, the stability margin to the left of the design point is shown to decrease by about 5% in flow coefficient (from 20% for the uncoupled case). Doubling the value of the coupling parameter not only produces a reduction of about 8% in the stability margin at low flow coefficients, but also gives rise to a rotordynamic instability at flow coefficients 7% higher than the design point.