Dry-type air-core shunt reactors are used for reactive power compensation and suppression of power frequency overvoltage. The number and capacity in the power grid are increasing day by day, but the accident rate is high. Among them, the ratio of interturn insulation faults is the highest, and effective online monitoring means of winding insulation state are urgently needed. In this paper, the "field-circuit" coupling simulation of dry-type air-core shunt reactor was carried out by using finite element software. By analyzing the characteristics of electrical, magnetic and force changes of short circuit between different turns and the same turn of the winding, the development process and formation mechanism of short circuit between turns of the winding were studied, and the sensitive state variables convenient for fault monitoring were explored, and an on-line monitoring method of winding insulation state based on the change rate of active power loss was proposed. The results show that the influence of short circuit between different turns on the physical parameters of the reactor is greater than that of short circuit between the same turns at the same position, and the short circuit between different turns occurs at the end of the reactor winding. Active power loss is sensitive to the process of reactor winding insulation fault development, and it is easy to monitor. By selecting appropriate insulation fault early warning value and insulation failure value, the state can be judged based on the change rate of active power loss, which can find reactor winding insulation fault in real time, facilitate timely measures and prevent the fault from spreading.