A method for resource allocation for video encoder to achieve optimal picture quality within a given resource budget. Making a video encoder utilize the computational complexity, bitrate and other resources in an optimal way while maintaining optimal quality is a complicated optimization problem. A subset of this resource allocation problem, optimizing the tradeoff between bitrate versus quality is called rate-distortion optimization and is performed in most modern encoders. In order to achieve a computationally practical solution of the resource allocation problem, the current invention partitions the video content into a number of regions based on their characteristics and assesses resource allocation among regions to achieve the optimal quality within the resource budget limit. To maintain the computation tractable, the invention relies on bit production model and distortion model for the underlying video content to assess the quality and resource usage instead of actually conducting video compression. An iterative optimization algorithm has been developed to implement the invention.