A method and system for reducing noise in a video stream comprising images divided into macroblocks, where each macroblock includes luma and chroma blocks and each block is comprised of pixels. The method comprises determining correlation of a macroblock with a reference macroblock, comparing its motion vectors to a predetermined threshold, computing a residual signal of the macroblock by subtracting the macroblock from a predicted macroblock, computing a variance of a residual signal of the macroblock, comparing the variance of the residual signal to another predetermined threshold, determining a filter strength for the macroblock based on one or more of factors such as correlation, motion vector size and variance of the residual signal and filtering the macroblock using a filter of appropriate strength.