An iterative process based upon a hybrid 'residual force' method is presented for solving elasto-plastic soil-structure interaction problems. In this approach, the soil and the structure are treated as separate bodies and related only by compatibility of displacements and equilibrium of forces at the soil-structure interface. This scheme enables a significant improvement in numerical stability and rate of convergence over the conventional initial stress method. It is also shown that various interface conditions such as shear failure, slip and breakaway, frictional and dilatant behaviour can be readily accounted for. Some practical aspects associated with the proposed scheme are emphasized for a number of numerical examples.