Among the ancillary service markets for smooth real time operation of the system, reactive power support ancillary service market is regarded as one of the most important services. In this work, the total reactive power required in the system is formulated and based on the bids received from the market participants, value for reactive power is determined. Due to localised nature of reactive power, an assessment of local reactive power requirement is more effective and hence in this work, a localised reactive power market is formulated. The objective of system operator is to minimise value of reactive power in each local market such that optimal scheduling of reactive power generation is achieved subject to system constraints and voltage support. The value function is formulated from the operation cost bids and lost opportunity cost bids (LOC) received from Generation Companies (GENCOs). From the Lagrange function, locational marginal price (LMP) is then determined. The proposed localised reactive power market is tested on IEEE 24-Bus system. It is found that the localised reactive power market maintains sufficient reserve and provide better voltage support. The advantage of proposed pricing scheme is that, the generators are paid based on the value of reactive power requirement in the system determined locally, thereby reducing volatility of price and chance of exercising market power. © 2019 IEEE.