A series active power filter compensating current harmonics and unbalanced source voltages in a 3phase-3wire power system is presented. The system is composed of series active power filter and shunt passive filters that are tuned at 5th and 7th harmonics. The proposed series active power filter improves harmonic compensation characteristics of the shunt passive filters, reduces source side harmonic currents and compensates the unbalanced source voltages. In the proposed algorithm, compensation voltage for harmonic reduction is calculated by a performance function, and compensation voltage for the unbalanced source voltage is calculated based on the synchronous reference frame. Some results obtained from the experimental model using the proposed method are Presented to demonstrate and confirm its validity.