This paper presents a particle swarm optimization (PSO) as an efficient approach for loss reduction study. This issue can be formulated as a nonlinear optimization problem. The proposed approach employs the PSO algorithm for optimal setting of optimal power flow (OPF) based on loss minimization (LM) function. The study is carried out in two steps. First, by using the tangent vector technique, the critical area of the power system is identified under the point of view of voltage instability. Second, once this area is identified, the PSO technique calculates the amount of shunt reactive power compensation that takes place in each bus. The proposed approach has been examined and tested on the standard IEEE 30-bus test system. The results are promising and show the effectives of the proposed approach.