This paper presents design, simulation and development of hybrid active power filter for mitigation of the power quality problem at ac mains in ac-dc power supply feeding to a nonlinear load. The power filter is consisting of a shunt passive filter connected in series with an active power filter. At first passive filter has been designed to compensate harmonics. The drawback associated with the passive filter like fixed compensation characteristics and resonance problem is tried to solve by HAPF. Simulations for a typical distribution system with a hybrid power filter have been carried out to validate the presented analysis. Harmonic contents of the source current has been calculated and compared for the different cases to demonstrate the influence of harmonic extraction circuit on the harmonic compensation characteristic of the shunt hybrid power filter.