Soil-water interaction, accompanied by large deformation of materials and fluctuation of free surface, is a vital process in landslide induced surge or submarine landslide problems. A great challenge is posed for numerical simulation to deal with free surface, dynamic interface and large deformations. Two typical approaches in the Smoothed Particle Hydrodynamics (SPH) framework for modelling soil-water interaction were proposed: 1. water and soil are simulated as different layers considering permeability and porosity;2. water and soil are modeled as viscous fluid with different constitutive model in the same layer. However, the former is limited to seepage problems while the latter could not describe the elastic-plastic behavior of soil. An improved SPH based method which could overcome those defects is developed in this paper. Two typical tests of soil-water interaction including back-to-back extrution and face-to-face impact have been presented. The calculations are stable and the results appear acceptable throughout, which shows that the extremely large deformation and the dynamic interface can be handled well by the proposed SPH method. After that, a landslide-generated waves experiment by Heller (2007) is used to verify the accuracy of this method, and a good agreement is obtained in reproducing the soil-water dynamic interface and their respective profiles. The complete process including soil deformation, propagation of water waves, and soil-water interaction can be simulated satisfactorily, which overcomes the defects in the previous methods. This suggests the presented method is capable to deal with soil-water-coupled problems.