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Power transformers are the most important component in power system. Exposing these transformers to the harmonic distortions causes additional heat losses, insulation stress, decrease in lifetime of insulation, and reduced power factor with decrease in efficiency of the system. The lifespan of distribution transformers is influenced by the fragility of power quality in power networks. Harmonic mitigation filters with robust control technique are required to reduce the harmonic effects on power transformer. Traditionally, synchronous reference frame (DQ) is employed to control the shunt active power filter (APF) for mitigation of harmonics in power transformers. DQ control of Shunt APF lacks merits of fast response, delayed operation due to phased lock loop under abnormal grid conditions leading to insufficient harmonic elimination. A developed DQ method based on detecting the positive and negative sequence components is proposed to precisely control the shunt APF for reliable operation of power transformer. This detection technique improves the response time, mitigate the harmonics effecting the operation of transformer and overall power factor. The proposed control system is evaluated under different abnormal operating scenarios and compared with traditional DQ method. The results and analysis confirm the efficacy of the developed DQ method in improving the power transformer performance. [ABSTRACT FROM AUTHOR]