This paper presents a new algorithm for optimal power flow (OPF) based on thermal function techniques. The algorithm considers two sub-problems seeking for minimum cost of generation and minimum system transmission loss. These have been solved sequentially to achieve optimum allocation of real and reactive power generations with due consideration to system operating constraints pertaining to generation, bus-voltage and line flow limits. New models for handling system constraints have been developed to suit the thermal function based OPF algorithm. The mathematical models and algorithms are so developed to be solved by means of computer simulation of optimal power system models by thermal function. The potential of the new algorithm of OPF has been demonstrated through system data for electrical network. Results reveal that the proposed new algorithm has potential for on-line OPF solution.