Power quality standards (IEEE-519) require to limit the total harmonic distortion within satisfactory range caused by power electronic based devices. Our work deals with the design of hybrid active filter to reduce current perturbations produced by power electronics based devices. The Instantaneous Active and Reactive Power Method (pq) is used to perform the identification of disturbing currents. The pq algorithm creates a reference current, whereas, this reference current is tracked by the current of the voltage source converter. The currents of the voltage source converter are controlled by hysteresis controller. Simulation results showed that the hybrid active filter can compensate the harmonic currents effectively and improve power quality.