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This paper proposes a novel topology for a three-phase hybrid passive filter (HPF) to compensate for reactive power and harmonics. The HPF consists of a series passive filter and a thyristor-controlled-reactor-based variable-impedance shunt passive filter (SPF). A mutual-inductance design concept is used to reduce the series passive filter inductance rating. The special features of the proposed HPF system are as follows: 1) insensitivity to source-impedance variations; 2) no series or parallel resonance problems; 3) fast dynamic response; and 4) significant size reduction in an SPF capacitor. The performance of the proposed HPF system is validated by simulation, as well as by experimentation, under different load conditions. Experimental and simulation results show that the proposed system can effectively compensate all voltage and current harmonics and reactive power for large nonlinear loads.