This paper presents a modern protection algorithm for Out-of-Stability Detection (OOSD) that can be embedded into smart protection relay for real-time power system protection. The presented modern technique employing the Syncrophasor Measurement Units (SPMUs) and Extended Energy Function (EEF) proposed in the paper. The proposed EEF reflects the impact of damping into the formulated energy function. The above combinational algorithm provides the Critical Clearing Time (CCT) for transient system disturbances in real-time to provide the adequate tripping signal. Conventional Time Domain Method (CTDM) is used for achieving the instantaneous voltages and currents during all system conditions to be used as inputs for the SPMUs. Then a comparative analysis is made between CTDM and the proposed EEF to prove the validity and effectiveness of the proposed EEF for smart protection.