This paper presents a new video codec which is based on 2-D triangular mesh-based motion compensation and two step grid point motion estimation. With this approach the efficiency of compression and the quality of reconstructed images are improved. The compensation of motion for each triangular patch is performed by image warping using motion vectors at the grid points. The prediction error coding and the rate control meet MPEG-4 VM 3.0 specification. The experimental results show that the codec system proposed is simple in complexity and moreover, the quality of decoded images is improved.