For sending video data through very low bit-rate mobile channels, video codec with high compression rate is the pre-requisite. Although the H.263 video codec is recommended as one of the candidates due to its simplicity and efficiency, it is generally believed that its compression efficiency can be further improved if the content-based scalable video coding technique can be applied. In this paper, we propose a modified H.263 encoder which supports real-time content-based scalable video coding. The proposed technique is applied to real-time video surveillance systems for road traffic monitoring. For the proposed approach, the moving objects, i.e. cars, are first extracted from the steady background. Their activities are then further classified as fast or slow by assessing the regularity of their motion. The information is then passed to a modified H.263 encoder to reduce the temporal and spatial redundancies in the video. As compared with the conventional H.263 encoder using for the same application, the proposed system has a 20% increase in compression rate with negligible visual distortion. The proposed system fully complies with the ITU H.263 standard hence the encoded bit stream is completely comprehensible to the conventional H.263 decoder.