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The flexibility of field-programmable gate arrays (FPGAs) encourages design reuse and can greatly enhance the upgradability of digital systems. This flexibility is particularly useful in the design of highly flexible video encoding systems that can accommodate a multitude of existing standards as well as the rapid emergence of new standards. In this paper, we investigate the use of FPGAs in the design of a highly scalable variable block size motion estimation (VBSME) architecture for the H.264/AVC video encoding standard. The scalability of the architecture allows one to incorporate the system into low cost single FPGA solutions for low resolution encoding applications as well as into high performance multi-FPGA solutions targeting high-resolution video encoding applications. To overcome the performance gap between FPGAs and application specific integrated circuits (ASICs), our algorithm intelligently increases its parallelism as the design scales while minimizing the use of memory bandwidth. The core computing unit of the architecture is implemented on FPGAs and its performance is reported in this paper. It is shown that the computing unit is able to achieve real-time 40 fps performance for 640times480 resolution VGA video while incurring only 4% device utilization on a Xilinx XC5VLX330 (Virtex-5) FPGA. With 8 computing units (at 36% device utilization), the architecture is able to achieve real-time 45 fps performance for encoding full 1920times1088 progressive HDTV video.