In electrical impedance tomography (EIT), modified Newton Raphson (mNR) method is widely used inverse algorithm for static image reconstruction due to its convergence speed and estimation accuracy. The unknown conductivity distribution is estimated iteratively by minimizing a cost functional such that the residual error namely the difference in measured and calculated voltages is reduced. Although, mNR method has good estimation performance, EIT inverse problem still suffers from ill-conditioned and ill-posedness nature. To mitigate the ill-posedness, generally, regularization methods are adopted. The inverse solution is highly dependent on the choice of regularization parameter. In most cases, the regularization parameter has a constant value and is chosen based on experience or trail and error approach. In situations, when the internal distribution changes or with high measurement noise, the solution does not get converged with the use of constant regularization parameter. Therefore, in this paper, in order to improve the image reconstruction performance, we propose a new scheme to determine the regularization parameter. The regularization parameter is computed based on residual error and updated every iteration. The proposed scheme is tested with numerical simulations and laboratory phantom experiments. The results show an improved reconstruction performance when using the proposed regularization scheme as compared to constant regularization scheme.