The segmentation methods applied in MPEG-4 and H.26× showed mosquito and blocking effect in low bit rate applications. We have proposed a technique mainly directed to solve the mosquito and blocking effect of video coding. The procedure will be referred as Disparity Estimation based Video Codec (DEVC). First the frames are processed by binarization for separating the moving parts from the still parts in the frame; it is analogous to separating an object from the background in image processing. Second multi-resolution images will be created from the motion parts of the frame. The objects will be represented as region segments in each resolution. A matching or correspondence is done between pair of selected frames to compensate for the frames between them. Finally the motion vectors will be created by applying the “Steepest Decent Method”. DEVC showed comparatively high quality video sequences compared to MPEG-4. In addition the mosquito effect, blocking effect and The Motion Estimation (ME) mismatches have been removed from video sequences at low bit rate.