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In the H.264/AVC video codec, multiple reference frames are applied for motion estimation to provide good coding efficiency. However, multiple reference frames also require more memory cost than one reference frame used in a video codec. To minimize the amount of memory requirement, this work proposes to add a decision unit in the H.264/AVC codec to store these reference frames. The said decision unit would look closely at macroblock (MB) of the currently decoded frame to determine it's storage type to be compressed or reconstructed data, according to the encoding parameters of subblocks in this MB. Furthermore, an adaptive scheme is proposed to store the currently decoded frame as reconstructed picture for lowering the computational complexity and using the buffer in full. Experimental results reveal that the proposed memory reduction scheme requires lower complexity and better picture quality than the conventional work. Therefore, the proposed memory reduction scheme can be widely used in various applications of the H.264/AVC codec to minimize the memory requirement.