This paper proposes a new algorithm to generate a reference signal for an active power filter using a sliding-window FFT operation to improve the steady-state performance of the active power filter. In the proposed algorithm the sliding-window FFT operation is applied to the load current to generate the reference value for the compensating current. The magnitude and phase-angle for each order of harmonics are respectively averaged for 14 periods. Furthermore, the phase-angle delay for each order of harmonics passing through the controller is corrected in advance to improve the compensation performance. The steady-state and transient performance of the proposed algorithm was verified through computer simulations and experimental work with a hardware prototype. A single-phase active power filter with the proposed algorithm can offer a reduction in THD from 75% to 4% when it is applied to a non-linear load composed of a diode bridge and a RC circuit. The active power filter with the proposed reference generation method shows accurate harmonic compensation performance compared with previously developed methods, in which the THD of source current is higher than 5%.