The paper presents an efficient method for minimising power losses and for improving the voltage profile of a large power system. This is accomplished by optimal allocation of reactive-power generation in the system by changing generator voltages and transformer tap settings. The problem is formulated as an optimisation problem, suitable for solution by the linear-programming technique. The advantage of this method lies in its very fast convergence. This, coupled with the fact that load-flow calculations are not necessary, results in considerable saving in computer time and memory. The proposed algorithm has been tested on sample systems and the results are presented and discussed.