Increasing integration of renewable energy sources into the electric grid makes it necessary to develop new efficient solutions for interfacing such sources in the grid. The smart transformer (ST) is a promising solution for such a changing grid scenario. This paper proposes an ST-based hybrid low voltage AC (LVAC) and low voltage DC (LVDC) interconnected microgrid system. The available LVDC link of ST is extended in the distribution grid to realize an LVDC distribution line and the grid connected converters are connected to this proposed LVDC line. The power flow in the proposed system is investigated and a detailed performance comparison between conventional and proposed system is carried out. The proposed restructuring in the distribution grid ensures reduction in ST LV converter size, distribution losses, converter losses and control complexity of the DG converters. This scheme also helps in achieving improved voltage regulation in the LVAC line. Simulation and experimental results verify the proposed scheme.