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In this paper we present a rate control algorithm to control the encoded picture size in a video sequence within a specified maximum limit. The need to control the encoded picture size arises in several video applications; (i) video conferencing to ensure the glass to glass delay is within acceptable conversational delay, (ii) video encoders complying with H.241 MTU packetization constraints to ensure that for all pictures real-time encoding can be achieved. The proposed rate control algorithm adjusts the quantization scale at the end of every row in the video sequence. Bits consumed by the already encoded macroblocks are monitored and the quantization scale is increased if the bits consumed are more than the average bits per macroblock as determined by the maximum encoded picture constraint. It is shown that in a video encoder complying with H.241 MTU packetization constraints the picture encoding time does not always meet the real-time encoding constraint. However, by using the proposed rate control algorithm in the video encoder (complying with H.241 MTU packetization constraints) it is shown that the encoding time for all pictures always meets the real-time constraint. Additionally, it is also shown that using the proposed rate control enables improvement in overall video quality. For sequence #3 the PSNR was increased by 3.8 dB and the DMOS was decreased by 44 points when the proposed rate control algorithm was used compared to the previous rate control algorithm indicating significant video quality improvements1. Thus with our proposed algorithm the dual requirements of (i) real-time encoding and (ii) improved video quality, are both simultaneously achieved.