Let $H$ be a semisimple algebraic group. We prove the semistable reduction theorem for $\mu$--semistable principal $H$--bundles over a { \it smooth projective variety $X$} defined over the field $\bc$. When $X$ is a { \it smooth projective surface} and $H$ is simple, we construct the algebro--geometric Donaldson--Uhlenbeck compactification of the moduli space of $\mu$--semistable principal $H$--bundles with fixed characteristic classes and describe its points. For large characteristic classes we show that the moduli space of $\mu$--stable principal $H$--bundles is non--empty.
Categories: math.AG math.DG