Phasor measurement units (PMUs) are key elements in wide area measurement system (WAMS)-based operations of power systems. Most existing algorithms consider the problem of optimal PMU placement, where the main objective is to ensure observability. In this paper, we consider a placement problem to ensure observability while achieving a desired level of reliability of observability. A placement model is developed considering the reliability of an individual PMU (p), to achieve a specified level of system-wide reliability (R). The problem is formulated as a two-stage optimization model. In the first stage, an integer linear programming (ILP) model is solved to obtain optimal placement solutions that satisfy the reliability and observability constraints. The second stage identifies the solution that maximizes system reliability. The model is solved for the IEEE 14, 30, 57, and 118 bus test systems, and a large-scale 2383 bus system. Assuming a PMU reliability of 0.9, the results show that, on average, placement of PMUs at 60 per cent of the buses in the network lead to a system reliability of 0.99.