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Variable size motion estimation with multiple reference frames has been adopted by the new video coding standard H.264. It can achieve significant coding efficiency compared to coding a macroblock (MB) in regular size with single reference frame. On the other hand, it causes high computational complexity of motion estimation at the encoder. Rate distortion optimized (RDO) decision is one powerful method to choose the best coding mode among all combinations of block sizes and reference frames, but it requires extremely high computation. In this paper, a fast inter mode decision is proposed to decide best prediction mode utilizing the spatial continuity of motion field, which is generated by motion vectors from 4times4 motion estimation. Motion continuity of each MB is decided based on the motion edge map detected by the Sobel operator. Based on the motion continuity of a MB, only a small number of block sizes are selected in motion estimation and RDO computation process. Simulation results show that our algorithm can save more than 50% computational complexity, with negligible loss of coding efficiency.