This paper presents a highly integrated sinusoid reference generating system based on Microblaze, suitable for precise testing of protective relays. Microblaze, a soft CPU core, was embedded in a FPGA that integrates an ADC interface, a DAC interface, an EEPROM and other peripherals. The prototype and transfer functions of various types of digital filters were designed with reference to the characteristic of the required output signal. Their functional behaviour were implemented in the system on chip using a recursion algorithm. As a critical factor in the digital reference design, a detailed discussion has been performed to introduce the theory of three types of closed-loop control, i.e. amplitude, frequency and phase control. A digital PI control algorithm was implemented in the system to satisfy the control target. The experimental results indicate that the relay evaluation system, using this sinusoid reference, operates correctly. The paper will demonstrate how the performance of the output sine signal improves, as compared with the normal sine reference, especially when outputting low amplitude signals. The research methodology of this reference system and this highly integrated circuit are significant for the optimization of a relay testing system, and provide a theoretical justification and a feasible implementation for a precise relay testing system.