Due to high cost of Photovoltaic (PV) panel and lower conversion efficiency, an efficient design of PV system is necessary. In this paper a novel fuzzy logic based maximum power point tracking (MPPT) algorithm for single-stage grid interactive PV system is proposed. The proposed PV system supplies both active and reactive power during day time. At night or under lower solar insolation, the PV system still provides reactive power compensation. This improves the overall efficiency of PV system. The PV system is simulated for varying load and insolation. The proposed fuzzy logic based MPPT algorithm gives fast convergence and very low oscillation around the MPP. The simulation results validate the performance and stability of the PV system with the proposed control algorithm.