The decentralized technique is used to investigate the stability of the large-scale system in the presence of each isolated subsystem with optimal model matching. The optimal model matching of the isolated subsystem is first obtained by applying the parameter optimization technique to minimize a meaningful measure of model matching, then a sufficient condition is derived such that the compensators stabilize the overall system using a functional analysis technique. Moreover, a necessary and sufficient condition for the existence of such a compensator is derived by using the Nevanlinna-Pick interpolation. Finally, an optimal design algorithm is proposed to attenuate the effect of interconnection between subsystems.