A new wide-area damping control strategy is investigated for flexible AC transmission systems (FACTS) device using widearea measurement system (WAMS) signals. The purpose is to design a dynamic output wide-area damping controller (WADC) for improving the stability of interconnected power systems. The time-varying delay of wide-area signal is incorporated into the design process, which can effectively reduce the delay effect on the damping performance. First, a discrete-time plant model with time-varying delay is established for power systems; then by using the proposed improved free-weighting matrices (IFWMs) approach and a convex optimization algorithm, a new and less conservative delay-dependent stability criterion, expressed in the terms of linear matrix inequalities (LMIs), is obtained without ignoring any useful terms on the difference of a Lyapunov function. Detailed case studies on a 4-machine two-area benchmark test system and 16-machine five-area NETS-NYPS interconnected system show that the designed WADC can not only maintain effective damping performance under the condition of time-varying delay but also get the maximum wide-area time delay.