In this paper, an improved B-picture coding algorithm based on the symmetric bi-directional motion estimation (ME) is proposed. In addition to the block match error between blocks in the forward and backward reference frames, the proposed method exploits the previously-reconstructed template regions in the current and reference frames for bi-directional ME. The side match error between the predicted target block and its template is also employed in order to alleviate block discontinuities. To efficiently perform ME, an initial motion vector (MV) is adaptively derived by exploiting temporal correlations. Experimental results show that the number of generated bits is reduced by up to 9.31% when the proposed algorithm is employed as a new macroblock (MB) coding mode for the H.264/AVC standard.