In this paper we address one of the most challenging problems of electromag
netic (EM) geophysical methods: three-dimensional (3D) inversion of EM data
over inhomogeneous geological formations. The difficulties in the solution
of this problem are two-fold. On the one hand, 3D EM forward modelling is
an extremely complicated and time-consuming mathematical problem itself. On
the other hand, the inversion is an unstable and ambiguous problem. To ove
rcome these difficulties we suggest using, for forward modelling, the new q
uasi-analytical (QA) approximation developed recently by Zhdanov ct at (Zhd
anov M S, Dmitriev V I, Fang S and Hursan G 1999 Geophysics at press). It i
s based on ideas similar to those developed by Habashy et al (Habashy T M,
Groom R W and Spies B R 1993 J. Geophys. Res. 98 1759-75) for a localized n
onlinear approximation, and by Zhdanov and Fang (Zhdanov M S and Fang S 199
6a Geophysics 61 646-65) for a quasi-linear approximation. We assume that t
he anomalous electrical field within an inhomogeneous domain is linearly pr
oportional to the background (normal) field through a scalar electrical ref
lectivity coefficient, which is a function of the background geoelectrical
cross-section and the background EM field only. This approach leads to cons
truction of the QA expressions for an anomalous EM field and for the Freche
t derivative operator of a forward problem, which simplifies dramatically t
he forward modelling and inversion. To obtain a stable solution of a 3D inv
erse problem we apply the regularization method based on using a focusing s
tabilizing functional introduced by Portniaguine and Zhdanov (Portniaguine
O and Zhdanov M S 1999 Geophysics 64 874-87). This stabilizer helps generat
e a sharp and focused image of anomalous conductivity distribution. The inv
ersion is based on the re-weighted regularized conjugate gradient method.