Abstract The demand for electric power has consistently been on the rise, owing to urbanisation and technological improvements. On the generation side, renewable sources have been favoured over their polluting, exhaustible, non‐renewable counterparts. These changes in the power system have necessitated a system for maintaining the supply‐demand balance, to maintain system stability. A complex power system is also more prone to blackouts and grid failure. Islanding helps in provision of supply to consumers in a microgrid, reducing the possibility of a blackout. Depending on the power demand and generation, loads need to be shed or restored to mitigate power imbalances. A wide area distribution management system (WADMS) is proposed to dynamically shed and restore loads in the islanded mode, with the aid of micro phasor measurement units (µPMUs). A priority and consumer‐based load shedding and restoration (PCLS) algorithm is proposed in the WADMS that preferentially sheds or restores loads based on their assigned load priority indices and number of consumers. The algorithm has been tested on a modified IEEE 13 bus system, incorporated with a solar photovoltaic (PV) system, diesel generators (DGs) and an energy storage system (ESS) in MATLAB Simulink.