An image processing method and system is provided for reducing the quantization layer in an input quantized image. The system detects if a pixel in a quantized input image belongs to a ramp area in a selected direction. Based on such ramp detection, a quantization level is dynamically selected. Then, a pre-segmentation operation is performed on a smoothly changing image area for each pixel in that direction. That area can then be refined by segmentation. A low-pass filtering process can then be applied to the refined segment to obtain filtered pixels. An overall gain value is then determined and used to adjust the filtered pixel luminance values to obtain output luminance values with higher precision values than that of the input image luminance values. This provides an output video image with reduced quantization layer and less perceivable quantization artifacts.