Ground faults (GF) in a feeder with interconnected distributed generation (DG) might lead to overvoltages in healthy phases even after feeder disconnection from a substation, obstacles for reclosing schemes, and safety hazards. It requires urgent disconnection of DG to prevent islanding. On the other hand, fast location of GF in compensated networks is a difficult task and finding of the correct fault location is necessary in order to decrease a number of undesirable DG decoupling. The current paper proposes a communication-based scheme preventing islanding forming in a system. The scheme utilizes a new fast and universal indicator revealing fault positions. A locating algorithm is also applied to restrict unwanted disconnection of DG. The method is tested on a model in PSCAD/EMTDC of an actual 22 kV multiterminal grid grounded by a Petersen coil and including DG. The results show that the new indicator can reliably discriminate faults in the system. It has been found that precision of the locator utilizing two-point measurements is not sufficient and might lead to nuisance tripping of the DG. Using of multi-point measurements and the proposed indicator helps to solve this problem for a complex feeder topology. Finally, the same signals can be applied to enhance accuracy of the locator.