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A three-phase shunt active filtering algorithm based on the real component of fundamental load current (I cos Phi) has been proposed and implemented in a novel manner in this paper. The complete simulation and hardware implementation of the active filter (AF) with the proposed algorithm has been presented. Simulations have been performed for various dynamic operating conditions under balanced/unbalanced nonlinear reactive loads for both balanced as well as unbalanced/distorted source conditions. The AF has been realized by means of a hysteresis current-controlled voltage-source inverter (VSI). The experimental setup is controlled by making use of simple op-amp-based analog circuits and digital signal processor ADMC401. Experimental results have been obtained for different load and source conditions and discussed in detail. The response of the AF system in simulation as well as in hardware proves the effectiveness of the proposed control technique.