A hybrid element method is presented for the dynamic analysis of piles and pile groups embedded in exponentially graded transversely isotropic media. In this method, the piles are modeled using finite elements, while the dynamic pile–soil–pile interaction is modeled through superposing the response of a series of massless rigid radiation discs defined at the nodal points of the elements. A set of complete potential functions are used to derive the analytical solutions for the lateral vibration of radiation discs embedded at different depths in a nonhomogeneous transversely isotropic half-space. A Boussinesq-type loading distribution is introduced to act on the radiation discs to satisfy the displacement compatibility conditions between piles and soil. Numerical results and comparisons with known analytical/numerical solutions are presented to demonstrate the application of this method. The influence of the soil nonhomogeneity on the lateral compliances of piles and pile groups is particularly emphasized.