<p>Reactive power management is essential for the power system operation as it affects energy transmission efficiency, power quality, and voltage stability. Designing and operating microgrids in an islanded manner requires proper reactive power planning. A unique reactive power planning approach has been developed in this work by using the modified version of Newton–Raphson approach to identify the weak buses in a microgrid which need the immediate reactive power support. Since, there is no inertia in the system, distributed generators’ participation in load sharing is enhanced by implementing the optimal droop parameters. Hence to select the optimal values for these parameters which affect the reactive power directly or indirectly particle swarm optimization (PSO) has been used to identify the optimal values for the active and reactive power droop coefficients. The frequency power droop control is governed by the real power droop coefficient, which adjusts frequency in response to real power fluctuations. Due to the coupling between voltage and frequency in islanded microgrid arrangements, frequency changes can have an indirect impact on reactive power distribution, even if its main function is to balance demand and generation. Conversely, the reactive power droop coefficient determines how the voltage magnitude changes in reaction to changes in reactive power and has a direct impact on voltage reactive power droop regulation. The power losses in 6-bus system have been reduced by 8.33% while the same losses have been reduced by 6.25% in case of a 38-bus system by using the reactive power support at weak buses. To check the efficacy of this proposed method, a comparative analysis has also been presented for different loading conditions.</p>