Motion estimation plays a very important role in a video compression scheme. It is well known that in a video compression scheme, there exists a high temporal correlation between consecutive video image frames. However, it is difficult to do motion estimation for newly exposed objects, since there is no temporal information and thus, the error signal generated by newly exposed object is large. A method of unrestricted motion estimation is used to take advantage of spatial correlation between the pixels of a newly exposed object. Using unrestricted motion estimation, a newly exposed reference object is padded and expanded with virtual pixels which have the same characteristics of the portion of the object which is newly exposed. The padded object is used to determine the error signal. The error signals produced by using unrestricted motion estimation are significantly smaller, reducing the error signal by up to between 5% and 10%. In addition, unrestricted motion estimation reduces the overall compression bitrate, and increases the overall speed and efficiency of the compression scheme being used.