In a block-based motion compensated system, coding noises may arise due to lossy operations. Adaptive loop filter (ALF) is a technique used to improve the quality. A pixel adaptive (PA) ALF method was developed that uses the Sum-modified Laplacian Measure (SLM) to classify pixels and applies a respective ALF filter to each pixel according to the SLM. While the PA ALF achieves better performance over a conventional single filter (SF) based ALF, the PA ALF causes higher complexity and consumes more power due to the high complexity and per-pixel filter switching. Accordingly region based ALF scheme is disclosed which allows adaptive filter selection on a region by region basis and does not require per-pixel filter switching. In one embodiment according to the present invention, a picture is divided into M×N regions. The region based ALF also allows region merging for the M×N regions to improve performance. In another aspect of the present invention, the optimal ALF design also takes into consideration of the system complexity by using rate-distortion-complexity optimization (RDCO). The RDCO technique is also applied to sample adaptive offset (SAO) design.