The motion estimation and compensation technique is widely used for video coding applications but the real-time motion estimation is not easy due to its enormous computations. In this paper, a new adaptive reduction of search area for the block-matching algorithm is presented to reduce the computational complexity of the full search block-matching algorithm for low bit-rate video coding. The proposed method exploits the correlation of successive video frames and adjusts the size of search area depending on the displaced block difference and the block classification information in the previous frames of the block. Simulation-results show that the proposed algorithm has similar mean square error performance to the full search block-matching algorithm but only requires less a half computational complexity than the full search algorithm. (C) 2000 Academic Press.