The significant shunt parameters of underground cable (UC) systems, as well as the frequently-used shunt reactor, draw many attentions in the implementation of the differential relay. In this paper, a novel ratio of model error indices (RMEIs) based differential protection (RMEIDP) scheme is proposed. The internal/external faults lead to different fault component networks, from which the proposed RMEIDP distinguishes the fault states by identifying the corresponding fault component models. The RMEIDP scheme, incorporating both the external fault differential model and the internal one, is theoretically unaffected by the cable charging current and weakens the impacts of shunt reactor. What’s more, the proposed RMEIDP scheme is adaptive for not only the fault steady state but also the fault transient state, since the time-domain fault information is directly used in the model error index (MEI) computation. DIgSILENT-based EMT simulation results of the UC transmission system prove the effectiveness and merits of the new differential relay scheme.