Abstract Product quantization is an effective vector quantization approach to compactly encode high-dimensional vectors for fast approximate nearest neighbor (ANN) search. The essence of product quantization is to decompose the original high-dimensional space into the Cartesian product of a fifinite number of low-dimensional subspaces that are then quantized separately. Optimal space decomposition is important for the performance of ANN search, but still remains unaddressed. In this paper, we optimize product quantization by minimizing quantization distortions w.r.t. the space decomposition and the quantization codebooks. We present two novel methods for optimization: a nonparametric method that alternatively solves two smaller sub-problems, and a parametric method that is guaranteed to achieve the optimal solution if the input data follows some Gaussian distribution. We show by experiments that our optimized approach substantially improves the accuracy of product quantization for ANN search.