Variable size block motion estimation is a very important technique for video coding. The new H.264 standard employs 7 different size block types which can significantly improve the coding performance compared with the previous video coding standards. On the other hand, the computational complexity of H.264 encoder increases dramatically due to the various coding modes used. In this paper, an efficient inter mode decision approach is presented. The objective is to reduce the number of candidate block types in the motion estimation while maintaining the coding efficiency. Experimental results show that the proposed method can save the computation cost by up to 42% at the same PSNR and bitrate.