Abstract-In contrast to the traditional centralised power system state estimation methods, this paper investigates the interconnected optimal filtering problem for distributed dynamic state estimation considering packet losses. Specifically, the power system incorporating microgrids is modelled as a state-space linear equation where sensors are deployed to obtain measurements. Basically, the sensing information is transmitted to the energy management system (EMS) through a lossy communication network where measurements are lost. This can seriously deteriorate the system monitoring performance and even lose network stability. Secondly, as the system states are unavailable, so the estimation is essential to know the overall operating conditions of the electricity network. Availability of the system states provides designers an accurate picture of the power network, so a suitable control strategy can be applied to avoid massive blackouts due to lose network stability. Particularly, the proposed estimator is based on the mean squared error between the actual state and its estimate. To obtain the distributed estimation, the optimal local and neighbouring gains are computed to reach a consensus estimation after exchanging their information with the neighbouring estimators. Then the convergence of the developed algorithm is theoretically proved. Afterwards, a distributed controller is designed based on the semidefinite programming approach. Simulation results demonstrate the accuracy of the developed approaches under the condition of missing measurements.Index Terms-Distributed controller, distributed dynamic estimation, energy management system, packet losses, linear matrix inequality.