The excessive use of nonlinear load causes electric current harmonics that ultimately downgrades the electrical power quality. If a failure exists due to internal integration of a power system in any one of the internal networks, it causes uncomplimentary consequences to the entire power system’s performance. This paper proposed a hybrid shunt active harmonic power filter (HSAHPF) design to reduce harmonic pollution. A digital controller HIL simulator has been modeled using a three-phase voltage source inverter to test the efficiency of HSAHPF and the performance of control algorithms. Moreover, the instantaneous active and reactive current theory (Id − Iq) and instantaneous active and reactive power theory (Pq0) control algorithms are implemented for the reference current generation in HSAHPF, resulting in reduced harmonic distortions, power factor improvement for a balanced nonlinear load. The control algorithms are further employed in Arduino MEGA to keep the factor of cost-effectiveness. The simulation of the proposed design has been developed in Simulink. The validation and testing of HSAHPF using controller HIL simulation prove the control algorithms’ ability to run in a portable embedded device. The statistical analysis of the proposed system response provides a minimum total harmonic distortion (THD) of 2.38 from 31.74 that lies in IEEE 519-1992 harmonic standards with an improved stability time of 0.04 s. The experimental verification and provided results of the HIL approach validate the proposed design. Significant mitigation of harmonics can be observed, consequently enhancing the power quality with power factor near unity.