In a multi-phase power grid fed by a power source, earth fault (460) is located by means of a power supply source synchronized with the power grid, which is connected between a zero point of the grid and earth. In a fault current compensation mode (420), a control unit controls the alternating voltage source to compensate for any ground fault current in the power grid to a value below a threshold level. In a fault detecting mode (430), the control unit gradually adjusts the output voltage of the alternating voltage source with respect to amplitude and/or phase angle (440). A change of zero-sequence current and zero-sequence admittance between the alternating voltage source and a fault location is measured (450) by means of at least one detector. The at least one detector is communicatively connected to the control unit and reports recorded measured values representing zero-sequence current and/or zero-sequence admittance to the control unit. In the fault detecting mode, the control unit localizes a ground fault (460) based on at least one of said measurement values representing changes of the zero-sequence current and/or zero-sequence admittance, upon which an affected branch is disconnected (470) or the system switches to the fault compensation mode (420).