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This study proposes a decentralised secondary voltage and frequency control based on the state estimation principle and cooperative strategy in an islanded microgrid. Following the establishment of a large signal model of microgrid, an adaptive sliding mode observer is allocated to each distributed generation unit to estimate the transient responses of the other units based on the coupling of the physical system. In this way, the proposed secondary control is implemented in a fully decentralised structure such that each distributed generation requires its own information only; unlike conventional centralised or distributed control methods, this scheme obviates any requirement for communication network and remote measurements, which leads to improved system reliability, flexibility and scalability. Simulation results are presented to verify the effectiveness of the proposed secondary control for a typical microgrid system. [ABSTRACT FROM AUTHOR]