The popularity of distributed generating (DG) sources have been increasing over the past few years. With the increasing penetration of these DGs, the concept of micro grid is becoming popular. A micro grid is a small power system network with distributed generating sources which can operate seamlessly irrespective of the presence of the utility grid. Operating the micro grid in this manner increases system reliability and reduces power interruptions. However, it introduces several control challenges. This thesis aims at analysing the behaviour of a micro grid system during the transition between grid connected mode and islanded mode of operation and address the control challenges through novel schemes. With the presence of grid, the micro grid system variables, such as voltage and frequency, are strictly regulated by the grid. The local sources follow the voltage and frequency reference set by the grid and supply constant power. With the loss of grid, that is when the system is islanded, the network variables need to be regulated by the local sources. The control structures for the inverter-based sources during the two operating modes are detailed in the present work. With the loss of grid, the system should be able to transfer seamlessly to islanded mode without any transients. Similarly, when the grid supply is restored, the micro grid should seamlessly resynchronize to the grid without any transients. This thesis proposes two novel controller schemes for achieving seamless transfer between grid-connected and islanded mode in micro grids. The rst scheme uses an output feedback topology to reduce the transitions during mode transfer. The second scheme uses a Linear Quadratic Regulator (LQR) theory based compensator to achieve seamless transfer. The performance of the proposed schemes have been validated through simulations on a benchmark micro grid network for various operating conditions. An experimental micro grid set-up is developed with a single inverter based DG source. The droop control scheme for islanded mode of operation has been validated on hardware.