The high proportion of nonlinear and unbalanced loads results in power quality issues in islanded microgrids. This paper presents a novel control strategy for harmonic and unbalanced power allocation among distributed generators (DGs) in microgrids. Different from the existing sharing strategies that allocate the harmonic and unbalanced power according to the rated capacities of DGs, the proposed control strategy intends to shape the lowest output impedances of DGs to optimize the power quality of the microgrid. To achieve this goal, the feasible range of virtual impedance is analyzed in detail by eigenvalue analysis, and the findings suggest a simultaneous adjustment of real and imaginary parts of virtual impedance. Because virtual impedance is an open-loop control that imposes DG to the risk of overload, a new closed-loop structure is designed that uses residual capacity and absorbed power as feedback. Accordingly, virtual impedance can be safely adjusted in the feasible range until the power limit is reached. In addition, a fuzzy integral controller is adopted to improve the dynamics and convergence of the power distribution, and its performance is found to be superior to linear integral controllers. Finally, simulations and control hardware-in-the-loop experiments are conducted to verify the effectiveness and usefulness of the proposed control strategy.