In the future electrical distribution system, it can be predicted that local power generators such as photovoltaic panels or wind turbines will play an important role in local distribution network. The local energy generation and local energy storage device can cause indeterminable power flow, and this could cause severe protection problems to existing simple overcurrent coordinated distribution protection system. An accurate, fast and reliable protection system based on pilot protection concept is proposed in this thesis. A comprehensive protection design specialized for the FREEDM system - the intelligent fault management (IFM) is presented in detail. In IFM, the pilot-differential protective method is employed as primary protection while the overcurrent protective method is employed as a backup protection. The IFM has been implemented by a real time monitoring program on LabVIEW. A complete sensitivity and selectivity analysis based on simulation is performed to evaluate the protection program performance under various system operating conditions. Followed by the sensitivity analysis, a case study of multiple-terminal model is presented with the possible challenges and potential limitation of the proposed protection system. Furthermore, a micro controller based on a protection system as hardware implementation is studied on a scaled physical test bed. The communication block and signal processing block are accomplished to establish cooperation between the micro-controller hardware and the IFM program. Various fault cases are tested. The result obtained shows that the proposed protection system successfully identifies faults on the test bed and the response time is approximately 1 cycle which is fast compared to the existing commercial protection systems and satisfies the FREEDM system requirement. In the end, an advanced system with faster, dedicated communication media is accomplished. By verifying with the virtual FREEDM system on RTDS, the correctness and the advantages of the proposed method are verified. An ultra fast protection system response time of 4ms is achieved, which is the fastest protection system for a distribution level electrical system.