This paper presents a new decomposition and coordination algorithm based on Ward equivalent to solve the reactive power optimization problem in the multi-area power system. First， the multi-area interconnected power system is partitioned into master and slave areas. The boundary buses are defined as different bus types respectively corresponding to different areas， and the transfer method of phase angles from master area to slave areas is determined. Second， the initial value of equivalent injection power is obtained according to power-flow calculation in the basic operating state. Then the computational inefficiency of the equivalent admittance matrix of the external network due to the variation of transformer ratios is solved by adopting the inverse matrix modification lemma. The equivalent accuracy of the external network is greatly improved. An external coordination strategy suitable for reactive power optimization calculation is introduced to obtain better coordination effects with less coordinating communications. In comparison with the centralized optimization method， the algorithm proposed has yielded test results concerning IEEE 39-bus and 538-bus practical systems that are both correct and effective.