Estimation of intracranial electric activity from the scalp electroencephalogram (EEG) requires a solution to the EEG inverse problem, which is known as an ill-conditioned problem. In order to yield a unique solution, weighted minimum norm least square (MNLS) inverse methods are generally used. This paper proposes a recursive algorithm, termed Shrinking LORETA-FOCUSS, which combines and expands upon the central features of two well-known weighted MNLS methods: LORETA and FOCUSS. This recursive algorithm makes iterative adjustments to the solution space as well as the weighting matrix, thereby dramatically reducing the computation load, and increasing local source resolution. Simulations are conducted on a 3-shell spherical head model registered to the Talairach human brain atlas. A comparative study of four different inverse methods, standard Weighted Minimum Norm, L1-norm, LORETA-FOCUSS and Shrinking LORETA-FOCUSS are presented. The results demonstrate that Shrinking LORETA-FOCUSS is able to reconstruct a three-dimensional source distribution with smaller localization and energy errors compared to the other methods.