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In a deregulated electricity market, it may always not be possible to dispatch all of the contracted power transactions due to congestion of the transmission corridors. System operators try to manage congestion, which otherwise increases the cost of the electricity and also threatens the system security and stability. In this paper, a new zonal/cluster-based congestion management approach has been proposed. The zones have been determined based on lines real and reactive power flow sensitivity indexes also called as real and reactive transmission congestion distribution factors. The generators in the most sensitive zones, with strongest and nonuniform distribution of sensitivity indexes, are identified for rescheduling their real power output for congestion management. In addition, the impact of optimal rescheduling of reactive power output by generators and capacitors in the most sensitive zones has also been studied. The proposed new zonal concept has been tested on 39-bus New England system and a 75-bus Indian system.