We address the problem of automatically constructing basis functions for linear approximation of the value function of a Markov Decision Process (MDP). Our work builds on results by Bertsekas and Castañon (1989) who proposed a method for automatically aggregating states to speed up value iteration. We propose to use neighborhood component analysis (Goldberger et al., 2005), a dimensionality reduction technique created for supervised learning, in order to map a high-dimensional state space to a low-dimensional space, based on the Bellman error, or on the temporal difference (TD) error. We then place basis function in the lower-dimensional space. These are added as new features for the linear function approximator. This approach is applied to a high-dimensional inventory control problem.