Injection of N2 through micro-jets located on the dump plane of a lean premixed swirl stabilized combustor is investigated as a new method for mitigating combustion instabilities. This study focuses on the chemical and fluid dynamic processes by which the N2 micro-jets impact the flame dynamics. An experimental and numerical investigation is performed to characterize the combustion instability during the V-to-M flame shape transition in a swirl burner fueled with premixed CH4/air, at an equivalence ratio of 0.62. Reasonable agreements have been found between the experimental measurements and simulation results. Both of them present that the flame changes from V-shape to M-shape periodically, and a low-frequency instability around 10 Hz is observed accordingly. It is confirmed that intermittent flame extinction in the outer recirculation zone (ORZ) is the source of the combustion instability. Furthermore, injection of N2 through micro-jets located on the combustor dump plane, into the outer recirculation zone, results in a stable V shape flame. It is clearly seen that the ORZ dilution can eliminate the combustion instability without inhibiting the combustion efficiency. A special focus is placed on the impact of the diluent injection on the local flame-flow interaction. The nitrogen micro-jets increase the local nitrogen concentration by 7% on average, lowering the flame speed and extinction strain rates by 27% and 17% respectively. Moreover, the micro-jets increase the turbulence intensity in the ORZ, leading to a significant increase in the Karlovitz number and transferring the local combustion regime from the thin reaction zone regime to the broken reaction zone regime. Hence, the nitrogen micro-jets impact on both the turbulence and the chemical reaction rates prevents flame propagation into the ORZ and results in a stable flame.