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This paper presents an interactive distributed generation (DG) interface for flexible micro-grid operation in the smart distribution system environment. Under the smart grid environment, DG units should be included in the system operational control framework, where they can be used to enhance system reliability by providing backup generation in isolated mode, and to provide ancillary services (e.g. voltage support and reactive power control) in the grid-connected mode. To meet these requirements, the proposed flexible interface utilizes a fixed power-voltage-current cascaded control structure to minimize control function switching and is equipped with robust internal model control structure to maximize the disturbance rejection performance within the DG interface. The proposed control system facilitates flexible and robust DG operational characteristics such as 1) active/reactive power (PQ) or active power/voltage (PV) bus operation in the grid-connected mode, 2) regulated power control in autonomous micro-grid mode, 3) smooth transition between autonomous mode and PV or PQ grid connected modes and vice versa, 4) reduced voltage distortion under heavily nonlinear loading conditions, and 5) robust control performance under islanding detection delays. Evaluation results are presented to demonstrate the flexibility and effectiveness of the proposed controller.