In this paper, a generalization of the λ-Method for the economic dispatch (ED) problem in an islanded electrical distribution system (EDS) is presented. The proposed approach is based on primal-dual constrained decomposition, which allows decomposing the centralized problem into small-scale problems that can be solved in parallel and independently by each unit. Active and reactive resources are taken into account in order to consider the technical operation of the EDS. A technical implementation based on the classic droop control is also proposed, in order to reduce the communication needs of the units and the leader unit. To assess the performance of the proposed approach, simulations were performed on the IEEE 118-bus system. The capability of the algorithm to respond to unexpected changes in load consumption, non-dispatchable generation, and faults in units were assessed. Finally, the flexibility and model independence characteristics of this approach are also shown considering prohibited operational zones (POZ) for some units.