Transcoding is an important technique for reducing the bit rate or spatial resolution to meet the constrained transmission bandwidths and terminal capabilities. In this paper, we propose a spatial downscaling transcoding method to convert an MPEG-2 bitstream into an H.264/AVC bitstream. A novel feature of the proposed method is to focus on the fast mode decision that fully exploits the advantages of variable block-size motion compensation feature in H.264/AVC. In the transcoder, types and motion vectors of pre-encoded macroblocks are considered together to decide the new encoding block type. While maintaining a reasonable image quality, the proposed method significantly reduces the computational complexity and facilitates the video servers to provide multimedia service in real time for heterogeneous clients. Experimental results show that our method is very effective.