This paper describes a distance relay that operates in conjunction with a current transformer (CT) compensation algorithm, which can be used with a measurement type CT. A distance relay detects a fault based on the ratio of the voltage to the current. If a CT saturates, the calculated impedance becomes larger. This causes maloperation or operating time delay of the distance relay. A compensation algorithm estimates the correct secondary current from the severely distorted currents of the measurement CTs. The compensation algorithm detects the start of saturation and then estimates the core flux at that instant. This value is used to calculate the flux during the fault. The flux is then inserted into the magnetization curve to calculate the magnetizing current corresponding to the flux. The correct current is estimated by adding the calculated magnetizing current to the measured secondary current. Test results show that the proposed distance relay can detect a fault without causing the operating time delay even when the secondary currents are extremely distorted because of use of measurement CTs.