Modern power system is moving towards a smart and competitive grid, with competing generating companies, power retailers, and strategically behaving consumers playing a crucial role in the daily operation of the system. Independent System Operator (ISO) monitors these daily operations and procure required services through market operations. Active and reactive power pricing in real-time at the wholesale and retail level is considered an efficient energy management method. However, procurement of reactive power through a market mechanism in real-time is not being implemented, despite its crucial role in maintaining system parameters within the permissible limits. This paper attempts to detail the challenges faced in implementing such reactive power markets and presents a review of existing reactive power market mechanisms to address these challenges. A framework suitable for reactive power ancillary service in a smart grid is also detailed in this paper. © 2021 Elsevier Ltd