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The video coding standard H.264/MPEG-4 AVC is designed based on the basic unit of macroblock (MB). In order to support the arbitrary resolution video coding when the picture does not contain an integral number of MBs, the H.264/MPEG-4 AVC encoder usually invokes a picture padding process to extend the boundaries of a picture by adding extra pixels. In this way, the video of an arbitrary resolution can be coded by an ordinary encoder and the resulting bitstream follows the H.264/MPEG-4 AVC syntax. From the perspective of coding efficiency and the concept of soft decision, we consider the issue of rate-distortion (R-D) based picture padding as an optimization problem, and present an iterative solution which integrates the optimal picture padding in the R-D optimization (RDO) process. Furthermore, to reduce the related computational burden, a heuristic solution is proposed based on comprehensive analyses on the influence of the padded pixels on the encoder performance. This solution takes the prediction errors and compression distortions of padded pixels as zero in the RDO process of the encoder, and automatically implements the concepts and techniques of template matching and spatial extrapolation to determine the padded pixels. Since it is carried out by directly utilizing the already existing algorithms of RDO, the proposed heuristic solution brings little additional computational complexity to the encoder. Based on the reference software for H.264/MPEG-4 AVC with its version of JM15.1, the effectiveness of the proposed method has been verified by extensive experiments.