Regulations concerning the environmental impact and energy efficiency of ships are becoming increasingly stringent. To meet these demanding criteria, new technologies are actively being developed to achieve emission reductions while maintaining efficient fuel energy conversion into propulsion power. However, the propulsion system behaviour in a dynamic environment of the actual sea is highly nonlinear and complex, and a profound understanding of the mutual interactions is still lacking. This paper proposes an integrated approach for comprehensive propulsion system analysis. The key feature of this technique is the utilisation of an intelligent propeller drive controlled by a marine diesel engine simulator (MDES) to drive the free-running model of a ship, providing real-like behaviour of the engine model in real-time in response to actual measured values. The core of the MDES consists of a continuous cycle-mean value dynamic engine model supplemented with a detailed combustion cycle evaluation. The developed fast calculation algorithm of crank-angle resolved thermodynamic equations of the gas state in the engine cylinder enables the complete engine model to be integrated into the real-time environment of a physical model ship. Thus, the propulsion system's performance can be analysed under conditions that closely mimic those of the actual sea environment.