Three degree-of-freedom (3-DOF) tool-based haptic interfaces are widely used in virtual environment to train operators, and for virtual prototyping and design. In some special cases with higher requirement on haptic fidelity, the tool needs to be modeled as an object with real volume rather than a single point. However, such object -to-object interaction will inherently involve reaction torques, which per definition cannot be reali zed by 3-DOF haptic interfaces. As a result, undesired system behavior such as vibration or sudden repulsion would occur whenever reaction torque is involved. In this paper , we proposed a penalty-based algorithm to realize stable yet convincing object-to-object interaction with 3-DOF haptic interfaces. The major contribution of this work is the regulation of excessive directional combined stiffness when multiple contact points are considered in the calculation of force feedback. In contrast to other 3-DOF rendering methods, our approach can generate translational movement to resemble the dynamics of end -effector during torque-involved interaction, while keeps the system stable throughout the whole task. A virtual peg-in-hole task was conducted to evaluate the performance of the proposed algorithm. We used the geometrical constraints to calculate an ideal trajectory of the end-effector as a function of the peg’s orientation. The result shows that the end-effector’s trajectory resembled the ideal one as the virtual tool was rotated in the hole. We also showed that the regulated combined stiffness converged to a desired value so that the system stayed stable throughout the whole interaction