In this paper a video coding scheme based on parametric compression of texture is proposed. Each macro block is characterized either as an edge block, or as a non edge block containing texture. The non edge blocks are coded by modeling them as an autoregressive process (AR). By applying the AR model in spatio-temporal domain, we ensure both spatial as well as temporal consistency. Edge blocks are encoded using the standard H.264/AVC. The proposed algorithm achieves upto 54.52% more compression as compared to the standard H.264/AVC at similar visual quality. © 2008 IEEE.