A technique of spectral noise shaping in an audio coding system is disclosed. Frequency decomposition of an input audio signal is performed to obtain multiple frequency sub-bands that closely follow critical bands of human auditory system decomposition. The tonality of each sub-band is determined. If a sub-band is tonal, time domain linear prediction (TDLP) processing is applied to the sub-band, yielding a residual signal and linear predictive coding (LPC) coefficients of an all-pole model representing the sub-band signal. The residual signal is further processed using a frequency domain linear prediction (FDLP) method. The FDLP parameters and LPC coefficients are transferred to a decoder. At the decoder, an inverse-FDLP process is applied to the encoded residual signal followed by an inverse TDLP process, which shapes the quantization noise according to the power spectral density of the original sub-band signal. Non-tonal sub-band signals bypass the TDLP process.