In our previous work, we introduced Spatially Varying Transforms (SVT) for video coding, where the location of the transform block within the macroblock is not fixed but varying. In this paper, we extend this concept and present a novel method, called Variable Block-size Spatially Varying Transforms (VBSVT). VBSVT utilizes Variable Block-size Transforms (VBT) in the SVT framework, and is shown to be more preferable for coding prediction error with different characteristics than fixed block-size SVT and also the standard methods that use fixed or adaptive block sizes at fixed spatial locations. In addition, VBSVT has similar decoding complexity with fixed block-size SVT and lower decoding complexity compared to standard methods as only a portion of the prediction error needs to be decoded. Experimental results show that, VBSVT achieves 4.1% gain over H.264/AVC on average over a wide range of test set. Gains become more significant at high quality levels and go up to 13.5%, which makes ...