An improved density matrix functional [correction to Buijse and Baerends functional (BBC)] is proposed, in which a hierarchy of physically motivated repulsive corrections is employed to the strongly overbinding functional of Buijse and Baerends (BB). The first correction C1 restores the repulsive exchange-correlation (xc) interaction between electrons in weakly occupied natural orbitals (NOs) as it appears in the exact electron pair density rho(2) for the limiting two-electron case. The second correction C2 reduces the xc interaction of the BB functional between electrons in strongly occupied NOs to an exchange-type interaction. The third correction C3 employs a similar reduction for the interaction of the antibonding orbital of a dissociating molecular bond. In addition, C3 applies a selective cancellation of diagonal terms in the Coulomb and xc energies (not for the frontier orbitals). With these corrections, BBC still retains a correct description of strong nondynamical correlation for the dissociating electron pair bond. BBC greatly improves the quality of the BB potential energy curves for the prototype few-electron molecules and in several cases BBC reproduces very well the benchmark ab initio potential curves. The average error of the self-consistent correlation energies obtained with BBC3 for prototype atomic systems and molecular systems at the equilibrium geometry is only ca. 6%.