Electric power quality is ability of the system to deliver electric power service in high quality so that the end use equipment will operate within its design specifications. Introducing power generation using renewable energy can increase regulations and need for reserves due to its natural intermittency. The impact of variables in distributed generation may range from negligible to significant depending on the level of penetration. Therefore, monitoring power quality accurately can reduce challenges occur in modern grid integration. This means, more reliable and accurate methods are needed to estimate phasors in the presence of signal distortion. This paper introduces a new phasor estimation method based on unscented Kalman filter (UKF). Several computer simulated test results are presented. The initial parameters for the method were chosen carefully using an establish parameter estimation method, least square. And it is concluded that the proposed algorithm has low computational demand and can track amplitude, frequency and dc component of distorted signals which makes it a promising method in the next generation of phasor estimation technique.