The modular multilevel converter (MMC) topology is gaining more interest because of its modular design, high efficiency, and scalable voltage levels in medium- and high-power industrial applications, where the nearest level modulation (NLM) method is frequently preferred. In this paper, a novel NLM method is proposed with increased output voltage quality for MMC topology. In conventional NLM (C-NLM), output voltage is obtained as N + 1 levels, where N is the number of submodules (SMs) per arm. The output voltage is increased to 2N + 1 levels by the proposed NLM method without using any additional SMs. The proposed NLM method is based on the offset term injection, which is optimally determined in terms of the best output performance of MMC. Also, trapezoidal reference signal is used instead of sinusoidal reference, which provides better output voltage quality and controls the modulation process. The proposed NLM method presents simple implementation as in the C-NLM, and it is implemented to the upper and lower arms of the MMC; then, arm voltages are successfully controlled. Furthermore, output voltage returns the value of zero in the C-NLM process for low-modulation-ratio applications in relatively small amount of SM usage of MMC design. However, the proposed NLM method gives promising results instead of zero voltage. In order to validate the superior performance of the proposed NLM method, a comparative study is presented with C-NLM and third-harmonic injected NLM method in terms of total harmonic distortion (THD) and magnitude of the output voltage and current. THD of output waveforms of MMC is significantly reduced, and DC voltage utilization is remarkably increased, thanks to the proposed NLM method. In addition, capacitor voltage balancing for the proposed NLM method is accomplished to keep the capacitor voltage of each SM of MMC constant. Simulation results are presented to verify the effectiveness of the proposed NLM method under various case studies. Finally, experimental validation is carried out using a field programmable gate array (FPGA)-based hardware implementation on the laboratory prototype to show the applicability of the proposed NLM method.