S U M M A R YA new finite-difference formulation is presented for the simulation of P-SV-wave propagation in heterogeneous, isotropic media. In this approach, the wave equations are separated as two sets of equations: one for the displacement fields and the other for potential fields. These two sets of equations involve only first-order spatial derivatives. In terms of potentials, t h e P-SV-wavefield can be split into P-and S-wave potential fields, which may open an opportunity of simulating P-and S-wave propagation in different ways. By assuming constant density and shear modulus, both P-and S-wave potentials can be expressed in the form of scalar wave equations. Thus, the Lindman 'free space' boundary condition (Lindman 1975) for scalar waves can be used. An improvement can be made by adding a dissipation zone to absorbing boundaries. F o r a 2-D model, four equations are used, which is one less than Virieux's (1986) velocity-stress approach. Therefore, the new algorithm is more efficient and requires less computer memory. T h e calculation is naturally performed in a staggered-grid manner which gives an excellent result for both internal discontinuities and model edges.