The invention belongs to the technical field of metallurgy and particularly relates to a circulating type mineral powder rapid reduction system capable of extracting hydrogen and a method. The circulating type mineral powder rapid reduction reaction system comprises a feeding system, a reactor, a heating system, a reduction gas system and a discharging system. The reactor is connected with the feeding system, the reduction gas system and the discharging system. The reduction gas system comprises a reduction gas inlet system and a reduction tail gas treatment system. The reduction gas inlet system comprises a reduction gas storage tank, a reduction gas inlet valve, a hydrogen extracting device, a heating device, a fan, an air distribution plate and the like. According to the circulating type mineral powder rapid reduction reaction system, mineral powder can be directly used as raw materials, the block making working procedure is omitted, the system is easy and convenient to operate and precise in temperature control, and the process is easy to control.