A method for performing localized multihypothesis prediction during video coding of a coding unit includes: dividing the coding unit into a plurality of sub-coding units; and performing motion vector prediction of each of the sub-coding units. More particularly, the step of performing motion vector prediction of each of the sub-coding units further includes: obtaining a plurality of motion vectors for multihypothesis motion compensation of a specific sub-coding unit of the sub-coding units from a plurality of other sub-coding/coding units. The method further includes performing multihypothesis motion compensation on the specific sub-coding unit according to the plurality of motion vectors, and more particularly, includes utilizing a linear combination of a plurality of pixel values of the plurality of other sub-coding/coding units as a predicted pixel value of the specific sub-coding unit. An associated apparatus is also provided.