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A fast mode decision algorithm for efficient implementation of the scalable video coding (SVC) extension of H.264/AVC is described. SVC incorporates interlayer prediction, a new tool that exploits as much lower layer information as possible in order to improve the coding efficiency of the enhancement layer. However, it also greatly increases the computational complexity. A fast mode selection algorithm that exploits the correlation of a macroblock in the enhancement layer and both the colocated macroblocks in the base layer and neighboring macroblocks in the enhancement layer is proposed. The algorithm examines the level of picture details and motion activity, and utilizes the mode information of the base layer to make faster enhancement layer decisions and thus save coding time. Simulation results show that the proposed algorithm reduces encoding by up to 84% compared with the JSVM 9.18 implementation. This is achieved without any noticeable degradation in rate distortion.