This paper describes a new directional overcurrent relay for protection of interconnected distribution network and DG unit. When the relay current exceeds its pick-up value, correlation of the voltage and current at the relay point as well as partial autocorrelation of the current are calculated. By comparing the calculated parameters with the prespecified thresholds, forward or backward direction of the fault are determined. A typical distribution network interconnected to a DG is simulated by EMTP software and performance of the method is evaluated in different network conditions. The results verify this fact that the proposed method is able to give fast and accurate response under various system conditions.