The Unified Power Flow controller (UPFC) is one of the Flexible A.C. Transmission Systems (FACTS) devices that has the unique capability of independently controlling the real and reactive power flow at different transmission angles, in addition to regulating the system bus voltage. In this research, the mathematical analysis of the effects of the UPFC's VA rating and the system Short Circuit Level (SCL) on the power flow are investigated to define the overall feasible operating area. Based on this analysis a new fuzzy logic controller has been proposed to improve the system performance. The controller rules are structured depending on the relationship between the series/shunt inserted voltages and the desired changes in real/reactive power flow in the power system. A power flow optimiser is designed based on real power priority logic and the on-line estimation of the SCL to define the appropriate operating point under different system contingencies. Three case studies are conducted to verify the capability of the UPFC and the effectiveness of the proposed fuzzy controller at different operating conditions.