A motion compensated video coding method which can be applied especially in transfer of video streams using low transmission bit rate is presented. In the motion compensated coding method, the motion of picture elements between a piece of reference video information and a piece of current video information is estimated and then modeled using certain basis function and coefficients. The coefficients are quantized, and the quantizer is selected according to a certain selection criterion, for example, based on a target image quality or on a target transmission bit rate. Preferably the selection criterion is such that it automatically adjust the accuracy with which the motion of picture elements is represented to be related to the accuracy with which the prediction error information is represented. A decoding method, an encoder and a corresponding decoder are also described.