The increase in extreme weather affects the distribution system, leading to system collapse and interruption power supply to loads. Microgrid formation and operation in island mode is a resilient solution when major faults happen in the distribution system. This paper proposes a novel microgrid formation model considering power loss and voltage constraints in the power balance and operation feasibility. The introduction of binary variables to represent the reconfigured network and the adoption of non-linear equations to represent the exact power flow will lead the microgrid formation model to be a mixed integer nonlinear program (MINLP). This paper proposes an iteration based linear approximation of the MINLP, the exactness of which can be guaranteed by the convergence of the iteration process. Numerical results based on IEEE 33 and PE&G 69 bus standard distribution systems demonstrate the effectiveness of the developed method.