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The concept of an optimal and flexible control (OFC) strategy for active filtering has been reported in the literature. The paper demonstrates that, under nonstiff-voltage conditions, due to the source impedance, the OFC strategy performs as a closed-loop adaptive system. This closed-loop system may exhibit poor transient response or even unstable behaviour. Based on source-impedance identification, the paper proposes an improved OFC (IOFC) algorithm to overcome the shortcomings of the OFC. Desirable performance of the IOFC algorithm, based on digital-time-domain-simulation studies in a MATLAB/SIMULINK environment, is also presented. Based on the IOFC algorithm, a new and important harmonic compensation strategy to minimise load-voltage harmonics is introduced and verified.