There is a growing proliferation of renewable sources of energy and single-phase loads, which are unevenly distributed across distribution networks. This imbalanced distribution intensifies unfavorable conditions within the network, leading to detrimental impacts on power quality, stability, and reliability. The objective of this paper is to demonstrate the collaborative functioning of a space vector-based positive and negative (SVPN) sequence controller and demand-side management to maintain voltage unbalance factor in the accepted threshold of 2%, as specified by the IEC standard 61000-3-13 in a typical IEEE 33 bus network. The presented approach for managing thermostatically controlled devices also proves to be highly effective in ensuring the thermal comfort of end users. Also, the absence of rotational masses in converter-interfaced microgrids leads to a reduction in system inertia. Any disturbance in the system leads to significant issues, such as an increase in the rate of change of frequency (RoCoF) and poor frequency response. Therefore, virtual synchronous generator is integrated with the SVPN controller to improve the frequency response of the system. The coordinated control scheme of the islanded microgrid has undergone assessment using the MATLAB/Simulink platform. Small signal modeling technique has been applied to the converters based on VSG control, incorporating positive and negative sequence controllers to address the escalating dynamic challenges in power electronics-based microgrids. This enhanced stability analysis facilitates handling the ever-increasing dynamic issues encountered in such microgrids.