A method of interpolation for motion compensation with fractional pixel accuracy in a video coding system, the method comprising: a) receiving input data associated with one or more current blocks in a current picture; b) determining one or more current motion vectors, MVs, associated with said one or more current blocks; c) locating one or more reference blocks in a reference picture according to said one or more current MVs; and d) for each of said one or more current MVs, if one current MV corresponds to a fractional-pixel location: generating interpolated reference samples at non-integer locations based on existing reference samples in one reference block by using an interpolation filter set adaptively according to pixel location, wherein the interpolation filter set consists of multiple interpolation filters; and e) encoding or decoding one current block using a temporal predictor including the interpolated reference samples, wherein the interpolation filter set comprises a longer-tap filter and a shorter-tap filter, wherein the longer-tap filter is applied to generate a first interpolated reference sample, the shorter-tap filter is applied to generate a second interpolated reference sample, and the first interpolated reference sample is farther from a related block boundary than the second interpolated reference sample, characterized in that f) said one or more current blocks correspond to two adjacent blocks for overlapped motion compensation, OBMC, and the shorter-tap filter is applied to generate the interpolated reference samples in an overlapped area between said two adjacent blocks, g) wherein the shorter-tap filter corresponds to a 4-tap filter and wherein the longer-tap filter corresponds to an 8-tap filter and the longer-tap filter is applied to generate the interpolated reference samples in a non-overlapped area of said two adjacent blocks. a) receiving input data associated with one or more current blocks in a current picture; b) determining one or more current motion vectors, MVs, associated with said one or more current blocks; c) locating one or more reference blocks in a reference picture according to said one or more current MVs; and d) for each of said one or more current MVs, if one current MV corresponds to a fractional-pixel location: generating interpolated reference samples at non-integer locations based on existing reference samples in one reference block by using an interpolation filter set adaptively according to pixel location, wherein the interpolation filter set consists of multiple interpolation filters; and e) encoding or decoding one current block using a temporal predictor including the interpolated reference samples, wherein the interpolation filter set comprises a longer-tap filter and a shorter-tap filter, wherein the longer-tap filter is applied to generate a first interpolated reference sample, the shorter-tap filter is applied to generate a second interpolated reference sample, and the first interpolated reference sample is farther from a related block boundary than the second interpolated reference sample, characterized in that f) said one or more current blocks correspond to two adjacent blocks for overlapped motion compensation, OBMC, and the shorter-tap filter is applied to generate the interpolated reference samples in an overlapped area between said two adjacent blocks, g) wherein the shorter-tap filter corresponds to a 4-tap filter and wherein the longer-tap filter corresponds to an 8-tap filter and the longer-tap filter is applied to generate the interpolated reference samples in a non-overlapped area of said two adjacent blocks.