Phase instability of conventional zirconia compounds (YSZ: Yttria Stabilized Zirconia) at temperatures above 1200 °C, is one of the important reasons of thermal barrier coatings (TBCs) destruction in new generation of turbines. In this study, ZGYbY: ZrO2 9.5Y2O3 5.6Yb2O3 5.2Gd2O3 powder, as a new material for TBC applications, was synthesized through a chemical co-precipitation method to enhance the phase stability of the YSZ at higher temperatures. A cyclic method with 5 h cycles at 1100 °C and 1300 °C for 50 h was employed to investigate the phase stability of YSZ and ZGYbY compounds. X-ray diffraction (XRD) and field emission scanning electron microscopy (FESEM) analysis confirmed the phase stability of both of powders during thermal cycling at 1100 °C for 50 h. The results of thermal cycling at 1300 °C for 50 h indicated that ZGYbY powder exhibits excellent phase stability due to full retention of t-prime zirconia phase and restriction of tetragonal to monoclinic phase transition upon cooling. However, in the case of YSZ powder, after thermal cycling at similar condition, it decomposed to two new phases including cubic and monoclinic zirconia with 62 wt% and 38 wt%, respectively.