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The increasing application of nonlinear loads may cause distribution system power quality issues. In order to utilize distributed generation (DG) unit interfacing converters to actively compensate harmonics, this paper proposes an enhanced current control approach, which seamlessly integrates system harmonic mitigation capabilities with the primary DG power generation function. As the proposed current controller has two well-decoupled control branches to independently control fundamental and harmonic DG currents, local nonlinear load harmonic current detection and distribution system harmonic voltage detection are not necessary for the proposed harmonic compensation method. Moreover, a closed-loop power control scheme is employed to directly derive the fundamental current reference without using any phase-locked loops (PLL). The proposed power control scheme effectively eliminates the impacts of steady-state fundamental current tracking errors in the DG units. Thus, an accurate power control is realized even when the harmonic compensation functions are activated. In addition, this paper also briefly discusses the performance of the proposed method when DG unit is connected to a grid with frequency deviation. Simulated and experimental results from a single-phase DG unit validate the correctness of the proposed methods.