This paper describes a compensation algorithm for a measurement voltage transformer (VT) based on the hysteresis characteristics of the core. The error of the VT is caused by the voltages across the primary and secondary windings. The latter depends on the secondary current whilst the former depends on the primary current, i.e. the sum of the exciting current and the secondary current. The proposed algorithm calculates the voltages across the primary and secondary windings and add them to the measured secondary voltage for compensation. To do this, the primary and secondary currents should be estimated. The secondary current is obtained directly from the secondary voltage and used to calculate the voltage across the secondary winding. For the primary current, in this paper, the exciting current is decomposed into the two currents, i.e. the core-loss current and the magnetizing current. The core-loss current is obtained by dividing the primary induced voltage by the core-loss resistance. The magnetizing current is obtained by inserting the flux into the flux-magnetizing current curve. The calculated voltages across the primary and secondary windings are added to the measured secondary current for compensation. The proposed compensation algorithm improves the error of the VT significantly.