In recent years, carrier based pulse-width modulation (PWM) has been extensively used for reducing input signal resolution in all-digital transmitters, and is known to provide better coding efficiency than other power encoding methods, e.g. delta-sigma modulation (DSM). Unfortunately, high levels of in-band distortion introduced by fully digitally implemented PWM, limit its usage in transceivers realized for software defined radio. In this paper, we exploit time-domain characterization of digital PWM in-band distortion, and propose a multilevel power encoding scheme based on DSM-PWM hybrid architecture with carefully selected design parameters, which enable optimal in-band distortion cancellation with low hardware complexity. Experiments with an arbitrary waveform generator are used to demonstrate effectiveness of the proposed novel power encoding scheme, and are compared with a standard multilevel PWM. The novel power encoding scheme offers -20dB improvement in SNR, while maintaining similar coding efficiency of roughly 73%.