Reliability of power systems can be improved by the use of voltage source inverters (VSIs) with fast dynamic control, which can handle uncertainties induced by renewable energy resources and nonlinear loads. To ensure fast-dynamic response and simplified controller design, various model predictive control (MPC) methods are investigated in this paper. In the conventional MPC design for three-level VSIs, the cost function requires an additional term to ensure the balance of the neutral-point voltage (NP-V), which however can considerably impact the main goal of the MPC. To address this issue, an enhanced MPC using virtual space vectors is proposed, which allows the use of a significantly reduced weighting factor for the term in the cost function for NP-V balancing, while retaining fast-dynamic response. Additionally, the proposed MPC leads to reduced harmonic distortion in the VSI output voltage and current. Both simulation and controller hardware-in-the-loop studies are performed to demonstrate the effectiveness of the proposed enhanced MPC in an operating microgrid under both steady-state and fast-transient conditions.