In this thesis the investigation of voltage imbalance reduction in islanded microgrids consisting of convertor-based distributed generation sources is considered. Nowadays, for various reasons, the trend is towards distributed generation and microgrids in electrical power systems and particularly in distribution networks. Microgrids are new concept for future energy systems. A microgrid includes several distributed generation units and electrical loads which are able to operate in two different modes, either as grid connected, or stand alone or islanded. In islanded mode, internal generators are responsible for supplying the energy for the loads and at the same time maintaining power quality within the allowable limits. Due to the presence of single phase loads and their unbalanced distribution, voltage imbalance has been considered as a power quality issue. This phenomenon has severe harmful effects on electrical machines and power electronic convertors. Therefore, it is necessary to consider voltage imbalance reduction issue in islanded microgrids by proper modification in the control system of distributed generation units. In this investigation, in order to have a proper evaluation and standard scale for qualitative and quantitative expressing of the imbalances, the various definitions of imbalance based on different existing standards are presented. Furthermore, the measurement methods for the voltage imbalance are also discussed. A microgrid may be controlled either by centralized or decentralized control strategy. The decentralized control strategy does not need any fast communication link and thus is more reliable. Therefore, the studies presented in this work is based on decentralized control strategy of microgrids. Consequently, a typical control system associated with each generation unit in an islanded microgrid is described and the load sharing and voltage and frequency control are discussed. The control system modeling is performed in synchronous reference frame. The performance of an islanded microgrid in the presence of local and nonlocal imbalanced loads with conventional control systems is shown. Conventional control systems cannot distinguish and separate positive and negative sequence components when the load is unbalanced. Therefore, the decomposition of control system into positive and negative sequence controllers are presented and system performance with this decomposed controller is investigated. Such a separation enables us to perform control task separately on positive and negative sequence components, and consequently reduce the imbalance. In order to compensate the unbalanced voltage, decentralized control method has been presented. Under unbalance conditions of the nonlocal busbar the unbalance factor will be out of standard limit. The proposed method for the correction of the voltage imbalance will be as follow: in the first place, negative sequence equivalent circuit of the island microgrid under unbalance conditions of the nonlocal busbar will be obtained. After its steady state analysis, the voltage phasor necessary to compensate the negative sequence component is determined. The calculation of the proper range of phase and amplitude of the negative sequence phasor is explained indetails. The main target in this regard is to introduce a certain amount of imbalance in the local bus, without exceeding the standard level, with the aim of improving voltage imbalance in the remote busbars. To determine negative sequence voltage amplitude, negative sequence current- negative sequence impedance droop characteristic are presented and discussed. In this case, based on proposed negative sequence current- negative sequence impedance droop characteristic and using local measured signals without access to load information, the nonlocal busbar negative sequence voltage compensation is done automatically without any local bus voltage limit violation. Finally proper performance of the structure in various cases has been presented using PSIM simulation software. Keywords: power electronic convertor based distributed generation sources, islanding operation of microgrid, proportional-integral controller, voltage imbalance compensation, negative sequence current- negative sequence impedance droop characteristic