In recent years significant changes in climate have pivoted the distribution system towards renewable energy, particularly through distributed generators (DGs). Although DGs offer many benefits to the distribution system, their integration affects the stability of the system, which could lead to blackout when the grid is disconnected. The system frequency will drop drastically if DG generation capacity is less than the total load demand in the network. In order to sustain the system stability, under-frequency load shedding (UFLS) is inevitable. The common approach of load shedding sheds random loads until the system’s frequency is recovered. Random and sequential selection results in excessive load shedding, which in turn causes frequency overshoot. In this regard, this paper proposes an efficient load shedding technique for islanded distribution systems. This technique utilizes a voltage stability index to rank the unstable loads for load shedding. In the proposed method, the power imbalance is computed using the swing equation incorporating frequency value. Mixed integer linear programming (MILP) optimization produces optimal load shedding strategy based on the priority of the loads (i.e., non-critical, semi-critical, and critical) and the load ranking from the voltage stability index of loads. The effectiveness of the proposed scheme is tested on two test systems, i.e., a 28-bus system that is a part of the Malaysian distribution network and the IEEE 69-bus system, using PSCAD/EMTDC. Results obtained prove the effectiveness of the proposed technique in quickly stabilizing the system’s frequency without frequency overshoot by disconnecting unstable non-critical loads on priority. Furthermore, results show that the proposed technique is superior to other adaptive techniques because it increases the sustainability by reducing the load shed amount and avoiding overshoot in system frequency.