This paper proposes an optimal zone clustering algorithm of islanded microgrids (IMG) based on supply adequacy taking into account the dynamic performance of distributed state estimation units. The IMG is partitioned into several localized, yet coupled zones, where each zone is responsible for its local state estimate and performs data fusion to reach consensus for shared state variables between zones. The technique proposes a novel algorithm to optimally define the placement of zones virtual boundaries by minimizing potential power transfer between adjacent zones. The proposed algorithm adopts the distributed particle filter (DPF) technique for the state estimation process. The proposed algorithm has the ability to come up with one optimal configuration considering different IMG events and scenarios. Monte Carlo simulations demonstrate the proposed technique efficiency in the presence of severely corrupted measurements and state values, as well as displaying tolerance to major load changes within the IMG. The DPF shows similar performance when compared to its centralized implementation, however it provides computational savings by a factor of number of zones.