This paper presents a new control scheme for a hybrid parallel active filter (HPAF) system intended for high-power applications-up to 100 MW nonlinear loads-to meet IEEE 519 recommended harmonic standards. The active filter inverter is realized with small-rated (1%-2% of the load rating) square-wave inverters operating at the dominant harmonic frequencies. The proposed system achieves harmonic isolation at desired dominant harmonic frequencies, such as the fifth and seventh, even in the presence of supply voltage harmonic distortions. A novel method of active filter inverter DC-bus control, as proposed here, achieves power balancing by exchanging energy at the fundamental frequency and at the dominant harmonic frequency (such as the fifth). The proposed square-wave inverter-based HPAF system provides improved filtering characteristics as compared to the conventional passive filter and is expected to be cost effective for high-power nonlinear loads compared to the conventional passive filter or other active filtering solutions. The concept of harmonic isolation at dominant harmonic frequencies by square-wave inverters with the proposed control scheme is validated by simulation results.