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Abstract. The proposed system consists of a series inverter, a shunt inverter, and a Distributed Generation (DG) connected in the dc link. It focuses on improving the power quality and ensuring the continuity of the electric power supply. The function of the scheme has been investigated in islanding mode which is a challenging mode of UPQC. The formulation of the proposed control scheme which is based on the instantaneous power theory is described. The proposed system can improve the power quality at the point of installation on power distribution systems or industrial power systems. Compensation of reactive power at the Point of Common Coupling (PCC) is examined. The effectiveness of the proposed scheme has been verified by simulation.