Even though shunt compensation of transmission lines (TLs) is a common practice to limit the overvoltages stemming from the Ferranti effect, it may cause transient and steady‐state resonant overvoltages when one phase is left open due to the single‐pole‐open condition following the temporary phase‐to‐ground (Ph‐g) fault. Furthermore, the existing shunt reactors potentially increase the duration of the secondary arc current at the fault point and hence prevent offering fast single‐pole reclosing. To exploit the mentioned issues, in recent studies, a neutral reactor is introduced, which is installed in the neutral point of the shunt reactors; nonetheless, obtaining the appropriate amount of it is remarkably challenging. In this paper, an optimal neutral reactor (ONR) is determined based on an optimization problem, which minimizes the neutral reactor cost subject to limiting both resonant overvoltages and the duration of the secondary arc current. In modelling, the Laplace domain is employed rather than the phasor domain to consider both transient and steady‐state conditions since this technique allows having better control over transient overvoltages as well as transient secondary arc.