The high penetration of distributed generation (DG) is a new challenge for traditional distribution systems. Power injections from DG units change network power flows, thereby influencing system losses and voltage stability. This paper presents a new multiobjective index (IMO)-based analytical approach to determine the optimal size and power factor of DG unit for reducing power losses and enhancing loadability. This index is defined as a combination of active and reactive power loss indices by optimally assigning a weight to each index such that the IMO can reach a minimum level. At this level, the optimal location and weights are identified. The proposed methodology has been tested on three typical distribution systems with different characteristics and validated using an exhaustive load flow (ELF) solution. The results show that DG operation with optimal power factor and appropriate weights for active and reactive power losses can significantly reduce power losses and enhance loadability. (C) 2013 Elsevier Ltd. All rights reserved.