SUMMARY A new method to identify the location and nature of the harmonic generating sources in a distribution system has been proposed. The method is based on wavelet decomposition of voltage and current signals at the point of measurement. Detail reactive power at level 1 of wavelet decomposition has been used. A harmonic generating load is identified by extracting its characterizing harmonics in the power system signals. The pseudo-frequency for the wavelet decomposition at level 1 is set at the characteristic frequency of the load, and the sampling frequency is so chosen that the desired harmonic information can be extracted at the detail level 1. Power systems signals are, however, captured at a higher sampling frequency. For the identification of the disturbing source, the required sampling frequency for level 1 decomposition is obtained using downsampling on the captured data. Applicability of the method has been demonstrated for both radial and non-radial power system networks.