Three-level inverter has an outstanding performance and is more advantageous in the switching vector selection than two-level inverter. In particular, the neutral-point voltage unbalance and common-mode voltage (CMV) reduction of three-level inverter should be carefully regulated for the appropriate operation, both of which, however, are mutually coupled resulting that the conventional space vector modulation (SVM) scheme cannot deal with them properly. To overcome this limitation, this paper proposes an improved space vector modulation (ISVM) technique to reduce the CMV and neutral-point voltage imbalance simultaneously. The generating mechanism of neutral-point voltage oscillation is derived. Based on the analysis, the proposed ISVM method adopts four voltage vectors (large, medium, small, and zero vectors) with adjusted dwell times to eliminate the ac unbalance of the neutral-point voltage. Considering the occurrence of neutral-point voltage disturbances, the dc neutral-point unbalance voltage is controlled by selecting the P-type or N-type small vector and adjusting the dwell times of small vectors for neutral-point voltage recovery. In addition, a novel switching sequence arrangement method with the minimal number of switches transition in one switching cycles and between switching cycles is proposed to reduce the total switching loss. Theoretical analysis and verification results show that the proposed ISVM scheme can reduce the magnitude of CMV to half of value using the conventional SVM, and an accurate control of ac and dc unbalanced neutral-point voltage can be obtained.