The unified power flow controller (UPFC) is a third generation flexible AC transmission system (FACTS) that uses solid state electronics to control the flow of power through lines in a faster and more economical fashion. In this paper, we propose a versatile control strategy of the UPFC that joins shunt active filtering and system balancing capabilities to real time power flow control into one device. To achieve optimal UPFC behaviour in the different mode, the controllable system parameters are determined on-line based on the local instantaneous voltage and current measurements. The strategy is based on the theory of instantaneous parameters defined in the positive, negative and zero sequence with real and imaginary components. The power flow calculation should not involve any conventional definitions of power, the Fortescus transformation is used to conform the relation of the instantaneous active and reactive power with the steady state power values. The control algorithm compensates the oscillated part of the instantaneous active power and reactive power component to achieve the harmonics compensation without any RMS value calculation of voltage and current. The UPFC and the transmission system model has been developed in Simulink environment for the digital simulation to demonstrate the versatility of the new control strategy. Interesting results have been obtained, which are presented in this paper.