This paper presents a new type of three-phase PWM rectifier with reactive power compensation function. The rectifier compensates reactive power based on its rated capacity. Under light and medium load, the rectifier has enough capacity to fulfill both reactive power compensation and PWM rectifier tasks. Thanks to the double-loop control and the sinusoidal-pulse-width-modulated (SPWM), the control system is able to stabilize the DC voltage and eliminate steady-state error. In addition to improvement of the power factor, the rectifier also has a unique advantage — improvement of equipment utilization. It is shown by analysis and simulations that the proposed rectifier offers an effective and practical solution to compensate the reactive power.