A dynamic zone division scheme is presented in this paper based on sensitivity analysis of power system. The concept of this scheme is to divide a large power system into small potential areas, which enclose strong correlated buses and have weak connections with each other. These areas can be considered as different individual zones in system analysis. In N-1 contingency analysis, the computation burden is largely reduced by operating in the level of potential areas, and the system cross-section distribution is determined dynamically. Analysis result can be used as an aid of power system operation and control. In this paper, IEEE-118 bus system is chosen as testing system, and this scheme is proved to be feasible and effective for large scale power system, it will be used to build the functional module of next generation EMS in Guangdong power grid and will serve as a function in power grid operation in the future.