<p>A novel multilevel converter-based shunt active power filter designed to address power quality (PQ) issues is presented in this paper. This is done by eliminating harmonics and compensating for the reactive power required by loads primarily in distribution networks. With the increasing integration of renewable energy sources, PQ challenges at the point of common coupling, such as voltage and current harmonics, have become critical. While conventional voltage-source converters have been widely used as active power filters, they suffer from limitations inherent to two-level converters, including total standing voltage, greater switching losses, significant electromagnetic interference, and increased voltage stress (dv/dt). In contrast, multilevel converters overcome these drawbacks. This paper leverages the advantages of multilevel converters and develops a novel seventeen-level inverter for PQ improvement in distribution systems. The proposed topology cuts down on the number of switching devices, simplifying the design while enhancing reliability. It also provides galvanic isolation between the source and load, eliminates the need for dead-band circuitry, supports high-frequency switching operation, and avoids bulky passive components, making the system cost-effective, compact, and efficient. A comprehensive yet easy to understand mathematical model of the active power filter is also presented. It includes the effect of the equivalent power system impedance, which is used to model the instantaneous reactive power control algorithm. Simulation and real-time results are compared with those of conventional pulse-width-modulated converters, demonstrating that the proposed filter can effectively negate load current harmonics, thereby maintaining high-quality sinusoidal currents drawn from the source. The compensation ability of the presented active power filter and the control scheme during nominal and transient conditions is also verified through simulations and real-time results.</p>