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The objective of rate control in video coding is to utilize the available communication bandwidth to transmit the highest quality video. This paper presents an innovative rate control algorithm for MPEG-1/2 encoders to improve the video quality at sudden and gradual scene transitions. The algorithm works in three steps. The fixed encoding structure of the MPEG data stream is disturbed by forcing an extension or termination of the last GOP of the first scene such that the first anchor picture of the second scene becomes an I-coded picture. P-pictures are provided with additional bits to compensate for the inefficient forward prediction during gradual scene transitions. The complexity parameters of each picture type are corrected with an iterative algorithm. Experimental results show that with the proposed algorithm, both objective and subjective quality of MPEG video can be improved significantly during scene transitions.