A method for a three-dimensional encoding or decoding system incorporating sub-block based inter-view motion prediction is disclosed. The system utilizes motion or disparity parameters associated with reference sub-blocks in a reference picture of a reference view corresponding to the texture sub-PCU split from a current texture PU (prediction unit) to predict the motion or disparity parameters of the current texture PU. Candidate motion or disparity parameters for the current texture PU may comprise candidate motion or disparity parameters derived for all texture sub-PUs from splitting the current texture PU. The candidate motion or disparity parameters for the current texture PU can be used as a sub-block-based inter-view Merge candidate for the current texture PU in Merge mode. The sub-block-based inter-view Merge candidate can be inserted into a first position of a candidate list.