Abstract Due to the lack of enough metering devices in the distribution networks compared with the transmission networks, it is burdensome to estimate the clustered distribution network state. This subject could lead to biased state estimation in the multi-area state estimation problem. This paper proposed a novel multi-objective function for phasor measurement unit placement involving all the state estimation error components (estimation error variance and estimation bias). The developed adaptive decision coefficients weighted different state quantities in the proposed function based on their contributions in the estimation error. The proposed objective function was compared with two known functions including minimizing estimation error variance and minimizing the maximum value of estimation deviation. The obtained results on IEEE 33 and UKGDS 356 node networks verified the effectiveness and comprehensiveness of the proposed method in clustered distribution networks.