The mathematical model of Voltage Source Converter (VSC) is totally different from the mathematical model of AC system. The observability analysis methods for AC system should be improved for modern power systems including VSC-HVDC. This paper presents an observability analysis algorithm for VSC-AC system. Firstly, the mathematical model of VSC-HVDC system for the observability analysis is introduced. The VSC-AC system is divided into three parts: AC system, converters and DC network. The interaction between these three parts in observability analysis is discussed. Secondly, considering actual measurements and equivalent measurements, some rules based on solvable condition are derived for the observability of VSC-AC system. Thirdly, according to the proposed rules, an improved observability analysis algorithm for VSC-AC system is proposed by using the alternative iterative method. Numerical results show that the proposed observability analysis algorithm for VSC-AC system is valid and effective. (5 pages)