Methods and systems encoding a stereo audio signal having a left channel and a right channel are disclosed. The system includes a downmixer for generating a downmix signal and a residual signal from the stereo audio signal in selected frequency bands representing only part of a used audio frequency range of the stereo audio signal, and a decision module for selecting, in a time variant manner, either left/right perceptual encoding or mid/side perceptual encoding. The system also includes a parameter estimator for estimating stereo parameters for reconstructing a stereo image of a portion of the stereo audio signal, and a perceptual encoder for performing either left/right perceptual encoding or mid/side perceptual encoding based on the selecting to generate an encoded output signal. Finally, the system includes a bitstream generator for creating a bitstream signal comprising the encoded output signal.