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This paper presents a three-phase three-wire shunt active power filtering system based on two level voltage source inverter which is intended to compensate both current harmonic distortion and reactive power under nonideal voltage conditions. The concepts of the p-q theory are used to calculate the reference compensating current according to the compensation strategy. An improvement in an existing phase-locked loop circuit is proposed to handle the shape of the small amount of additional current needed to cover the power system losses. In the dc-voltage loop, an optimal set point value which minimizes the harmonic distortion of the supply current and depends on power to be compensated is also proposed. Digital signal processor based implementation of the whole control system is described with details on the developed experimental platform dSPACE DS1103 for rapid prototyping. Experimental results obtained from a 15 kVA laboratory setup verify the effectiveness of the active filtering system.