Time delay error is common in fast pseudodynamic (PSD) tests due to the effect of actuator dynamics. This type of systematic error introduces energy into a system which if not monitored or controlled, can result in test instability and cause the response to grow exponentially. This leads to premature termination of a simulation and unreliable results. This paper proposes an intuitive error-compensation algorithm to correct this error by considering the systematic error as negative damping in the system. The key to this scheme is the introduction of varying viscous damping at each integration time step during the PSD test. The magnitude of the time-varying viscous damping is derived by equating the magnitude of the energy error with that dissipated by the introduced damping at every integration time step. Numerical simulations and experimental validations are presented in this paper to illustrate the effectiveness of the algorithm, to produce reliable simulation results in the presence of systematic time delay error and noisy measurements.