Large amounts of data have to be processed, transmitted and storage by modern video surveillance applications. Thus, low bit-rate video compressed algorithm is very critical. For indoor surveillance application, only motive object is the most interesting and significant part. This paper proposed a motion detection based motion estimation algorithm to achieve low bit-rate and low complexity for surveillance application. It includes a pre-stage for classifying macroblocks into motive and static blocks. For the unimportant static macroblock, low bitrate skip mode has been chosen as the best mode. Simulation results for indoor surveillance videos obtained 22%-28% bit-rate saving and 10%-36% ME time saving with no significant video quality loss.