For practical fiber reinforced plastic (FRP) structures, fibers are randomly packed in matrix, and some degree of clustering is often observed because of imperfect control of manufacturing process. In this work, a new method to generate random fiber distribution including fiber clustering is proposed according to fiber clustering characteristics of typical micro-image of FRP cross section. Irregularity and nearest neighbor fiber characteristics of random fiber distribution with fiber clustering are analyzed. Two-dimensional geometrically non-linear finite element (FE) modeling on representative volume element (RVE) is conducted to investigate transversely progressive tensile and compressive failure behavior of FRP. Extended linear Drucker-Prager model and cohesive zone model are employed to represent matrix deformation and interfacial debonding. Ultimate strength, fracture strain and crack characteristics of FRP with different degree of fiber clustering are derived and compared. It is shown that fiber clustering tends to result in significant decline and uncertainty of fracture strain and ultimate strength. The characteristics of fiber clustering can lead to two crack modes which affects the macro-scale mechanical properties of FRP.