In islanded operation, precise power sharing is an immensely critical challenge when there are different line impedance values among the different-rated inverters connected to the same electrical network. Issues in power sharing and voltage compensation at the point of common coupling, as well as the reverse circulating current between inverters, are problems in existing control strategies for parallel-connected inverters if mismatched line impedances are not addressed. Therefore, this study aims to develop an improved decentralized controller for good power sharing with voltage compensation using the predictive control scheme and circulating current minimization between the inverters’ current flow. The controller was developed based on adaptive virtual impedance (AVI) control, combined with finite control set–model predictive control (FCS-MPC). The AVI was used for the generation of reference voltage, which responded to the parameters from the virtual impedance loop control to be the input to the FCS-MPC for a faster tracking response and to have minimum tracking error for better pulse-width modulation generation in the space-vector form. As a result, the circulating current was maintained at below 5% and the inverters were able to share an equal power based on the load required. At the end, the performance of the AVI-based control scheme was compared with those of the conventional and static-virtual-impedance-based methods, which have also been tested in simulation using MATLAB/Simulink software 2021a version. The comparison results show that the AVI FCS MPC give 5% error compared to SVI at 10% and conventional PI at 20%, in which AVI is able to minimize the circulating current when mismatch impedance is applied to the DGs.