Video coding standard H.264/AVC employs transform coding to explore spatial correlation in inter picture prediction residue. This paper presents a block based DC offset to further explore the correlation in spatially neighboring blocks and provides H.264/AVC an enhanced coding efficiency performance. The proposed method applies DC offset to inter picture prediction residue, and encodes the offset compensated residual signal. The DC offset is derived from reconstructed residue in neighboring blocks. No additional bits are required for the DC offset representation. Simulation results report that the proposed method yields an average of 2.67% bit rate reduction for high resolution video over the H.264 baseline profile.