The traditional power‐decoupling controller for single‐phase photovoltaic (PV) micro‐inverters suffers from complex control structure, complicated parameter design and poor stability. In this paper, a novel compensation power‐decoupling strategy is proposed for a single‐phase three‐level flying capacitor PV micro‐inverter. The proposed strategy is aimed at tackling the problem of unbalanced charging and discharging of the flying capacitor, and hence makes the micro‐inverter highly stable and reliable. First, the topology and operating principle of the studied micro‐inverter are discussed, followed by the mathematical models established. Afterwards, the state‐space equations of the micro‐inverter are established for all the operating states, of which two transition variables are introduced to realize a linear presentation. On this basis, a double closed‐loop control method is designed to regulate the DC‐link voltage and current. Meanwhile, the flying capacitor voltage is controlled in a closed‐loop form to do the job of a power pulsating buffer (PPB). Following this, the proposed compensation power‐decoupling strategy is elaborated. Finally, some experimental results are presented to indicate the high performance of the studied micro‐inverter and verify the effectiveness of the proposed strategy.