Shannon coding is an important method of the variable length source coding. The correlation between source symbols is not considered in the process of determining the length of source code. This leads to longer code length and lower coding efficiency. In order to improve the coding efficiency, this paper proposes an improved Shannon encoding algorithm. The proposed algorithm fully considers the correlation between the symbols. Analysis and simulation results show that the proposed algorithm can determine proper source symbol code length, shorten the average code length, improve the coding efficiency and information transfer rate.