Power quality problems have been increasing due to the wide use of nonlinear loads. Nonlinear loads cause harmonic currents in networks and consequently distort the voltage and current waveforms at the point of common coupling. Unified Power Quality Conditioner (UPQC) is an efficient custom power device for enhancing the electric power quality at distribution levels. The UPQC is a combination of series and shunt active power filters sharing a common dc-link capacitor. This proposed system consists of a unified power quality conditioner integrated with a 7-level flying capacitor multilevel inverter to compensate the power quality problems in distribution system. The realization of shunt Active Power Filter is carried out using a three-phase 7- level Flying Capacitor Multilevel Inverter and the series active power filter is realized using a three-leg Voltage Source Inverter. The proposed FCMLI integrated UPQC system mitigates the power quality problems such as unbalanced voltage and current, harmonics by connecting non linear loads and improves the system stability during fault conditions.