A two-dimensional Monte Carlo approach of phase separation in binary alloys with internal elastic energy has been developed. Based on the standard Ising model, this approach considers both the binding potential and the internal elastic interaction between two species, which are assumed to decay respectively with the distance via power functions. It has been found that the phase separation exhibits quite different dynamics from the current mode which only takes into account the binding potential interaction. This dynamics is characterized by strong lattice anisotropy of the microstructure and structure function, periodically modulating correlation functions and an exponent of the late stage coarsening kinetics much smaller than 0.33 as well, demonstrating the crucial role played by the elastic interaction in dynamics of phase separation.