In this work, an adaptive observer supported fundamental extractor is developed to estimate the fundamental components of the load current for a three phase distribution static compensator(DSTATCOM) under nonlinear load. Main variations in the proposed work are the fundamental drawing out from the distorted load current and estimation of PI controller gains. With this observer, salp swarm optimization algorithm (SSOA) is used for estimation of DC PI controller and AC PI controller gains. The estimated gains are used for DC bus voltage and AC terminal voltage error minimization respectively. This optimization algorithm commendably progresses the initial random solutions and converge to optimum. Pareto optimal solutions are approximated in SSOA with prodigious convergence and coverage. The SSOA can search unknown spaces and can deal with real world problems for solutions. The suggested control scheme with the optimized gain values has controlled the power quality issues like improving the total harmonic distortion (THD) of grid current and decreasing burden of reactive power on the grid caused due to a nonlinear load. The laboratory performance of the considered system with adaptive observer using d-SPACE-1104 has been provided for implementation work.