Over the last few years, the sudden increase of the use of non-linear loads such as personal computers and TV sets created a Power Factor (PF) problem. Although such loads consume relatively small amount of power, however the large number of these loads resulted on huge distortion in the power quality. This paper proposes an automatic reactive power compensation circuit which can generate a leading as well as lagging reactive current. The proposed circuit consists of a build-in feedback system which automatically controls the amount and the type (leading or lagging) of the reactive power required. The compensator is modeled on PSPICE at the component level to illustrate both the transient and the steady state responses