This paper proposes the application of fractional order PID controller (FOPID) for reactive power compensation and stability analysis in a stand-alone micro grid. For enhancement of voltage stability and reactive compensation of the isolated system, a SVC based controller has been incorporated. This paper emphasizes the role of fractional PID based SVC controller for reactive power management and improved stability in the stand alone micro grid, as it provides a special advantage of having two more degree of freedom for accurate tuning in comparison with the conventional controller The system performance, particularly the variations in different parameters values are studied properly with different input parameters and loading conditions. Further improvement of stability margin and optimisation of the system parameters have been achieved by the controller, based on Imperialist competitive algorithm. (C) 2015 Elsevier Ltd. All rights reserved.