Modular multilevel converter (MMC) is an excellent topology for medium- and high-voltage applications due to its advantages over other multilevel converters. However, the control algorithm design needs meticulous attention as each submodule (SM) capacitor voltage is balanced around their reference. Any voltage inequality between the SM voltage causes the second harmonic-dominated circulating current inside the MMC. The circulating current increases the rms value of the arm currents, component ratings, and the ripple in the capacitor voltages unless it is appropriately controlled. This article proposes an optimized closed-loop circulating current control method based on PR and PI controllers in abc reference frame to prevent high circulating current inside an MMC. The proposed method suppresses the magnitude of circulating current while reducing the ripple in capacitor voltages. The ripple in the dc link voltage is also reduced without any supplementary controller under balanced and unbalanced ac grid conditions. Thus, the proposed circulating current control method reduces the conduction losses and component ratings, while the converter's efficiency and reliability increase. The method's verification is tested on a point-to-point connected MMC-based high voltage direct current system in a real-time simulator with Xilinx FPGA-based MMC emulator and arm controller.