A novel dynamic reactive power compensation circuit topology suitable for low voltage distribution system was proposed. The efficient compensation of unbalanced load could be realized by the structure of three-phase four-leg inverter circuit. The sinusoidal pulse width modulation (SPWM) control of inverter could ensure the low distortion of voltage and current. Besides, by the regulation of the inverter's output voltage, the compensation reactive power could be dynamically regulated and the aim of system's zero reactive power compensation could be realized. Combined with fixed capacitor compensator, small capacity of inverter is required to compensate dynamic reactive power. The novel dynamic static var compensator (SVC) could improve the system's power factor and voltage stability. Finally, simulations are carried on the platform of PSCAD/EMTDC. The results show that the proposed control strategy is feasible and efficient.