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In general, there exists a voltage difference between the reference and the output voltages in a pulse-width-modulated (PWM) voltage-source inverter (VSI). This difference or distortion is caused partly by the intended blanking time and partly by the inherent characteristics of the switching devices, which are dependent on the operating conditions. The voltage distortion in a PWM VSI is analysed and a new online estimation method for a permanent magnet synchronous motor (PMSM) is proposed to compensate for the time-varying voltage distortion. This new estimation method is not based on a direct voltage observation but on an indirect observation of the intermediate parameter, and the voltage distortion and the compensation voltage are calculated from this intermediate parameter. The former method gives an observation delay due to the low-pass filter, however, the latter method gives almost the same results as the real one.