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This paper presents a modified adaptive Kalman filter for sensorless current control of a three-phase inverter based distributed generation system. The delay introduced by measurements and the digital signal processor is compensated using a modified Kalman filter. The states of control variables can be estimated one sample in advance and the number of the measurement sensors can be reduced. For system robustness two current loops are used. Steepest descent adaptive control for grid voltage estimation has been employed in the control system. Stability and dynamic performances are analyzed using root locus for different state variables. Simulation and experimental results confirm the validity of the proposed approach.