In the vector control strategy of induction machines (IMs) fed by inverter, core loss information is critical to accurate determination of rotor magnetic field orientation and dynamic response control. However, methods introduced in IEEE-112 standard to separate the core loss on-line from the total loss are not available. This paper presents a novel real-time core loss determination approach considering the total harmonic distortion (THD) due to the voltage source inverter (VSI). In this method, the core losses estimation model is derived based on the Grey System Theory (GST). In order to consider VSI influence, time harmonics with different frequency bands are considered in the total losses calculation, and the core losses are segregated from the total losses using the proposed GST based core losses model. With the proposed approach, the core losses of the IM can be directly estimated from the measured currents and voltages, and the determined core losses can be used to the drive control system to improve the control performance. A comparison between the measured and determined core losses has been conducted to validate the proposed method.