Abstract: Aiming at the problems of low equipment utilization and high capacity requirement of the existing grounding fault arc suppression devices in the distribution network, this paper proposes a multi-function grid connected inverter (MF-GCI) with the ability of grounding fault regulation and reactive power compensation. This paper firstly introduces the topology and working principle of the MF-GCI. The MF-GCI is composed of the active module and the passive module. The system works in the reactive power compensation mode when the power grid is in normal operation to ensure the unit power factor operation of the power grid side; When a single-phase ground fault occurs in the power grid, it works in the arc suppression mode to effectively suppress the ground fault current. Secondly, through the first mock exam and vector analysis, the coordinated operation of the active and passive modules can achieve the capacity optimization of the MF-GCI in either mode. In addition, this paper proposes the operation logic of MF-GCI and the flexible switching method between the modes, which effectively solves the problem of converter output voltage overshooting during the mode switching. Finally, the correctness, feasibility and effectiveness of the proposed topology and function are verified through the comparative analysis of different schemes, the simulation and experiments.