Controlled pulse-width modulated (PWM) voltage source converters (VSC’s) are increasingly used in power systems for active filtering of line current harmonics and reactive power compensation. In this paper the parameter design of a state variable controller to determine the instantaneous switching pattern of the converter switches for optimal dynamic system performance is discussed. To this end the mathematical model of a system encompassing a three phase system grid and a VSC converter controlled by a state variable controller is developed. The space vector approach is used. Simulation results confirm the theoretical expectations.