The control paradigms of the distributed generation (DG) sources in the smart grid are realised by either utilising virtual power plant (VPP) or by employing MicroGrid structures. Both VPP and MicroGrid are presented with the problem of control of power flow between their comprising DG sources. This study depicts this issue for VPP and proposes a novel and improved universal active and reactive power flow controllers for three-phase pulse width modulated voltage source inverters (PWM-VSI) operating in the VPP environment. The proposed controller takes into account all cases of R-X relationship, thus allowing it to function in systems operating at high, medium (MV) and low-voltage (LV) levels. Also proposed control scheme for the first time in an inverter control takes into account the capacitance of the transmission line which is an important factor to accurately represent medium length transmission lines. This allows the proposed control scheme to be applied in VPP structures, where DG sources can operate at MV LV levels over a short/medium length transmission line. The authors also conducted small signal stability analysis of the proposed controller and compared it against the small signal study of the existing controllers. © The Institution of Engineering and Technology 2013.