Requirements on the power quality of AC sources are becoming more stringent as more voltage-sensitive equipments are being used. Among many power quality issues, voltage unbalance and voltage sags are two serious ones. This paper proposes an active voltage regulator, which is composed of a voltage source fed inverter (VSI) coupled in series with the supply through series transformers, to compensate the voltage unbalance and sags. In order to get the compensating voltage reference, a new approach to calculate the fundamental-positive sequence component of the source voltage is provided. The proposed method needs no synchronization hardware and can perform the calculation of fundamental-positive sequence component almost in real time. The regulator based on the proposed method works well under such conditions as source voltage sag and unbalance and has a good dynamic performance, which has been validated by experimental results.