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In this paper, a simple static var compensating scheme using a cascaded two-level inverter-based multilevel inverter is proposed. The topology consists of two standard two-level inverters connected in cascade through open-end windings of a three-phase transformer. The dc-link voltages of the inverters are regulated at different levels to obtain four-level operation. The simulation study is carried out in MATLAB/SIMULINK to predict the performance of the proposed scheme under balanced and unbalanced supply-voltage conditions. A laboratory prototype is developed to validate the simulation results. The control scheme is implemented using the TMS320F28335 digital signal processor. Further, stability behavior of the topology is investigated. The dynamic model is developed and transfer functions are derived. The system behavior is analyzed for various operating conditions.