For homing missiles, proportional navigation guidance law is generally employed, which requires line of sight (LOS) rate information from seeker to target. The target tracker or seeker in the missile is made to track the target through the tracker servo system (outer tracking loop). In most of the homing missiles, the seeker is space-stabilized in the presence of body motions with the help of a high gain inner loop (inner stabilization loop) which uses seeker mounted rate gyro signals for inner loop feedback. The body rate coupling in LOS rate creates an unwanted parasitic loop in guidance and control system. The paper addresses and solves the guidance loop stability problem arising due to body rate coupling to the seeker, which becomes acute due to fast guidance time constant and higher subsystem BW required in order satisfying very stringent mission requirement. It also presents a scheme to overcome parasitic loop instability with a complex seeker system with poor isolation properties.