Automatic mimicry is based on the tight linkage between motor and perception action representations in which internal models play a key role. Based on the anatomical connection, we hypothesized that the direct effective connectivity from the posterior superior temporal sulcus (pSTS) to the ventral premotor area (PMv) formed an inverse internal model, converting visual representation into a motor plan, and that reverse connectivity formed a forward internal model, converting the motor plan into a sensory outcome of action. To test this hypothesis, we employed dynamic causal-modeling analysis with functional magnetic-resonance imaging (fMRI). Twenty-four normal participants underwent a change-detection task involving two visually-presented balls that were either manually rotated by the investigator's right hand (“Hand”) or automatically rotated. The effective connectivity from the pSTS to the PMv was enhanced by hand observation and suppressed by execution, corresponding to the inverse model. Opposite effects were observed from the PMv to the pSTS, suggesting the forward model. Additionally, both execution and hand observation commonly enhanced the effective connectivity from the pSTS to the inferior parietal lobule (IPL), the IPL to the primary sensorimotor cortex (S/M1), the PMv to the IPL, and the PMv to the S/M1. Representation of the hand action therefore was implemented in the motor system including the S/M1. During hand observation, effective connectivity toward the pSTS was suppressed whereas that toward the PMv and S/M1 was enhanced. Thus, the action-representation network acted as a dynamic feedback-control system during action observation.