A motion refinement algorithm is proposed to enhance motion compensated noise reduction (MCNR) efficiency. Instead of the vector with minimum distortion, the vector with minimum distance from motion vectors of neighboring blocks is selected as the best motion vector among vectors which have distortion values within the range set by noise level. This motion refinement finds more accurate motion vectors in the noisy sequences. The MCNR with the proposed algorithm maintains the details of an image sequence very well without blurring and joggling. And it achieves 10% bit-usage reduction or 0.5 dB objective quality enhancement in subsequent video coding.