This paper presents a small signal state space modeling of three-phase inverter-based microgrid (MG) system with consideration of improved droop control. The complete system matrices for one distribution source-grid connects to the local load have been elaborated by applying high, medium and low-frequency clusters to the system without considering the switching action on the inverter during power-sharing. Moreover, the final matrices will be used to determine the location of the eigenvalues for the control parameters gains due to dynamic effect of the MG, by observing the root locus graph on cluster identification. Sensitivity analysis of all types of frequency cluster showed that power-sharing control parameters such as load current, source current, and inverter voltage are influencing system stability and must be considered when designing the proportional-integral (PI) control when different load scenarios have been applied from the zero-pole drifting. Those eigenvalues of the system model are indicating the frequency and damping oscillatory components when there is sudden changed at the inverter-grid connection. The matrices’ eigenvalues are being plotted using MATLAB/Simulink to identify system stability region and find the PI controller parameters.