Electronic – How to control op amp gain with atmega 32 MCU

One analog approach is to add an Automatic Gain Control stage to the inverted signal path. The responsiveness of the AGC can be tuned to provide just enough tracking for the envisaged purpose.

If the AGC is placed early enough in the signal path, it will not need to handle much power, making design simpler.

This is a common enough requirement in analog-based noise cancellation designs that several manufacturers have published relevant app-notes about it. For instance, this page on Mouser might be a useful place to start reading up on it.

An AGC can be constructed using op-amps, Variable Gain Amplifiers (VGAs), or dedicated audio-use AGC ICs. The specific approach would be determined by preferences such as whether surface mount ICs are an option, and level of distortion that is acceptable.

Since you've run a simulation, go and do an AC sweep to see where the MOSFET capacitance starts to increase the gain (should be MHz, looking at it).

Also, for high signal levels (greater than a few hundred mV input), with the MOSFET off, the MOSFET body diode will cause huge distortion on the negative half cycles. A change in bias could prevent that, but watch out for 'click' effects on gain change if that is important to you.