A combined system of a thyristor controlled reactor (TCR) and a shunt hybrid Power filter (SHPF) is used for reactive power compensation and harmonic reduction. The SHPF is the combination of a small rating active power filter and a fifth harmonic tuned LC passive filter. Five level neutral points clamped (NPC) 180° mode converter is used in shunt active power filter to improve power quality without using higher passive elements which has a reduced switching stress and switching losses that improve the lifetime of converters. The TCR along with tuned passive filter is used for reactive power compensation, to improve the power factor. A nonlinear control is developed in proportional-integral controller for current tracking and voltage regulation, which is based on decoupled control strategy that considers the controlled system, may be divided into an inner fast current loop and an outer slow voltage loop. Thus, an exact linearization control was applied to the inner loop, and a nonlinear feedback control law is used for outer voltage loop. A simulation study of the implementation topology has been carried out using MATLAB.