An indirect adaptive controller for a Static Synchronous Compensator (STATCOM) is designed to damp oscillations and enhance the stability of power systems. A combined on-line identifier and a Pole-Shift (PS) feedback controller, as an adaptive power system stabilizer, is applied to a STATCOM device connected at the middle bus of a single machine infinite bus system. A Kalman Filter as a parameters estimator is used for on-line model identification to track on-line the changes of the plant parameters and update the controller. Simulation studies demonstrate the effectiveness of the proposed indirect adaptive controller in damping the oscillations and enhancing the stability of the power system in comparison to the conventional controller.