In this paper, we present a novel adaptive thresholding-based color reduction algorithm. The proposed algorithm supports creation of a common palette for multiple images and transparent alpha images. This method was extensively tested for a large set of images and the results are reported here. The applications of proposed algorithm like qualitative image description, digital broadcasting, and bandwidth reduction are discussed in detail. The quality metric values of the experimental results show that the proposed method produces excellent results and outperforms existing state-of-the-art color reduction methods.