In this paper, a voltage compensator with harmonic current compensating capability is studied and its compensating characteristics are analyzed. Like the hybrid active power filter, the proposed system is composed of parallel LC passive filter and series PWM converter connected to power line through series transformer. It is shown that the compensation of harmonic current generated due to nonlinear loads such as diode rectifier and instantaneous voltage compensation of the source are performed through the proposed compensating system. The operating principle of the proposed system is described through a single-phase equivalent circuit and the control strategy is suggested on the d-q rotating reference frame of the 3-phase system. Also, experiment is carried out to verify compensating characteristics of the proposed system.