The low bit rate of existing video encoders relies heavily on the accuracy of estimating actual motion in the input video sequence. In this paper, we propose a Video Stabilization and Encoding (ViSE) system to achieve a higher coding efficiency through a preceding motion processing stage (to the compression), of which the stabilization part should compensate for vibrating camera motion. The improved motion prediction is obtained by differentiating between the temporal coherent motion and a more noisy motion component which is orthogonal to the coherent one. The system compensates the latter undesirable motion, so that it is eliminated prior to video encoding. To reduce the computational complexity of integrating a digital stabilization algorithm with video encoding, we propose a system that reuses the already evaluated motion vector from the stabilization stage in the compression. As compared to H.264, our system shows a 14% reduction in bit rate yet obtaining an increase of about 0.5 dB in SNR.