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In an H.264 video encoder, motion estimation (ME) is the most time-consuming component. The ME process consists of two stages, integer pixel search and fractional pixel search. Since the complexity of integer pixel search has been greatly reduced by numerous fast ME algorithms, the computation overhead required by fractional pixel ME has become relatively significant. To reduce the complexity of fractional pixel ME, we propose a prediction-based directional fractional pixel ME algorithm. We utilize more accurate motion vector predictions and directional search to achieve better computation reduction. We further propose an early termination method to decrease the amount of search. Experimental results show that, compared to the full search sub-pel ME and the fast sub-pel ME proposed in H.264, the proposed method can reduce up to 84% and 74% of fractional pixel search points respectively, with a negligible degradation in quality.