The current flowing though a power line is measured by a current transformer (CT). Since a CT is a kind of transformer, saturation of magnetic flux in the core may occur when a large primary current flows. This saturation makes the secondary current of a CT distorted and causes problems in the protection point of view. Because of the current distortion, a protection relay cannot collect the correct information showing how the primary power system changed. Consequently, the current distortion may cause the mal-operation or operation time delay of protective relay. In this paper, an algorithm based on AR model and LSQ is proposed to compensate the saturated CT secondary currents. Various test results indicate that the proposed algorithm can accurately compensate a severely distorted secondary current and is not affected by remanence.