Dynamic two‐phase interaction of soil can be modelled by a displacement‐based, two‐phase formulation. The finite element method together with a semi‐implicit Euler–Cromer time‐stepping scheme renders a discrete equation that can be solved by recursion. By experience, it is found that the CFL stability condition for undrained wave propagation is not sufficient for the considered two‐phase formulation to be numerically stable at low values of permeability. Because the stability analysis of the two‐phase formulation is onerous, an analysis is performed on a simplified two‐phase formulation that is derived by assuming an incompressible pore fluid. The deformation of saturated porous media is now captured in a single, second‐order partial differential equation, where the energy dissipation associated with the flow of the fluid relative to the soil skeleton is represented by a damping term. The paper focuses on the different options to discretize the damping term and its effect on the stability criterion. Based on the eigenvalue analyses of a single element, it is observed that in addition to the CFL stability condition, the influence of the permeability must be included. This paper introduces a permeability‐dependent stability criterion. The findings are illustrated and validated with an example for the dynamic response of a sand deposit. Copyright © 2015 John Wiley & Sons, Ltd.