Abstract: A novel method of improving the motion estimation and coding efficiency of Interframes in a video compression system is disclosed. The method teaches a novel minimization function to be used to determine the optimum motion vector for a block within a picture. The minization function takes into account not just the conventional sum of the differences but also the quantization step, the motion vector itself and the predicted motion vector. The minimization function disclosed better balances the tradeoff between the size of the motion vectors and the size of the resulting residuals. The results are particularly useful when the range of the search is increased. Motion vectors closer to the prediction motion vector will be favored over better matches found further away from the prediction motion vector. In addition, a novel variable length coding (VLC) method is also disclosed.