A method and system are disclosed for selecting a mode to encode video data. The method comprises the steps of (a) transforming a source video frame into a set of coefficients, (b) partitioning said set of coefficients into a plurality of subsets of the coefficients on the basis of probability statistics corresponding to a plurality of encoding modes, wherein each of said subsets is identified for encoding by one of the plurality of encoding modes. The method comprises the further steps of (c) for each of the plurality of subsets of coefficients, computing defined parameters of an associated probability distribution for said subset, and (d) repeating steps (b) and (c) until a predetermined termination condition is satisfied. When this predetermined termination condition is satisfied, the subsets of coefficients, as they exist at that time, are output to a video encoder, which preferably is a Wyner-Ziv encoder.