Automatically tuned passive filters can improve power quality to a great extent in power systems. A novel three-phase shunt auto-tuned filter is designed to effectively compensate source current harmonics and to provide reactive power required by the non-linear load, which draws a highly reactive, harmonic-rich current from the supply. An artificial neural network (ANN) based controller selects filter component values in accordance with reactive power requirement and harmonic compensation. Traditional passive filters are permanently connected to the system and draw large amounts of source current even under light load conditions. By using auto-tuned filters, the passive filter components can be controlled according to load variations and, hence, draw only required source currents. The selection is done by the ANN with the help of a properly tuned knowledge base to provide instantaneous compensation using a digital controller.