A method for optimal fueling of an engine is disclosed. The method includes determining a quantity of exhaust residuals in each cylinder among a plurality of cylinders in the engine. Further, the method includes determining at least one of an intake and exhaust manifolds temperature, at least one of an intake and exhaust manifolds pressure, and a quantity of a first fuel being injected to each cylinder, and calculating a characteristic temperature of each cylinder based on the quantity of exhaust residuals, at least one of the intake and exhaust manifolds temperature and pressure, and the quantity of the first fuel. The method further includes determining a substitution rate of the first fuel for each cylinder based on the characteristic temperature, and controlling at least one of the quantity of the first fuel, and a quantity of a second fuel being injected to each cylinder based on the substitution rate.