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This paper presents a fast variable block size inter mode decision algorithm suitable for low complexity MPEG-2 to H.264/AVC heterogeneous video transcoding in mobile environments. Macroblock inter coding mode prediction in H.264/AVC represents almost 70% of its computational complexity. An efficient transcoder would take advantage of the information stored in MPEG-2 bitstream (ex. motion vectors, DCT coefficients, etc.) to simplify macroblock mode decision in H.264/AVC. The proposed fast variable block size inter mode decision (FVBSMD) algorithm conditionally reuse MPEG-2 motion vectors along with only few DCT coefficients to eliminate unnecessarily complexity from H.264/AVC variable block size motion re-estimation process. Simulations results; using video sequences with different motion complexities, resolutions and frame rates; show about 80% computational complexity elimination with only a 0.2 dB and 2.5% degradation in PSNR and bit-rate respectively.