This paper investigates the operational performance of the rapid earth fault current limiter (REFCL) which has been employed in Australia to reduce the risk of the bushfires and shows that after the REFCL activation, an overvoltage is imposed on the grid which can lead to bushfire by creating a cross-country fault. Moreover, by increasing the penetration level of the inverter-based resources (IBRs), the potential inverter trip on transient overvoltage can become a vital issue. Since the protection functions of the IBRs are very sensitive to any transient overvoltage, their overvoltage or dc reverse current protection functions will trip the IBRs immediately following any overvoltage condition such as those caused during the REFCL operation. To tackle the mentioned problems, a novel voltage clamping based overvoltage protection strategy is proposed and developed through a smart power electronic topology. The paper presents the analytical analysis and the mode of operation of the proposed overvoltage protection strategy. The effectiveness of the proposed overvoltage protection strategy is tested through a comprehensive set of simulation studies in PSCAD/EMTDC. The simulation results show that the proposed strategy can immediately limit the magnitude of the overvoltage, thereby it can not only reduce the risk of cross-country faults and bushfires but it can also mitigate the spurious trips of the IBRs.