The changing amplitude and direction of short circuit current in the islanded mode (IM) and grid-connected mode (GM) make microgrid protection a significant problem. As relay coordination depends upon the fault current level, therefore, two different relay settings are required for proper coordination among relay pairs, one for each operating mode. Further, the performance of the coordination scheme depends upon the types of relays. In this context, this paper proposes a modified protection coordination scheme for microgrids by considering the user-defined dual setting directional overcurrent relays (DS-DOCRs) capable of providing coordination in both IM and GM. The main objective of the study is to determine the common optimal relay settings i.e., time multiplier setting (TMS), plug setting (PS) and relay characteristics constants (α) that can provide satisfactory coordination in each operating mode. The proposed approach is tested on a 7-bus microgrid (low voltage part of IEEE-14 bus system) and genetic algorithm (GA) is used as an optimization tool to determine the optimal relay settings.