Abstract. Similarity-based methods belong to the most accurate data mining approaches. A large group of such methods is based on instance selection and optimization, with Learning Vector Quantization (LVQ) algorithm being a prominent example. Accuracy of LVQ highly depends on proper initialization of prototypes and the optimization mechanism. Prototype initialization based on context dependent clustering is introduced, and modification of the LVQ cost function that utilizes additional information about class-dependent distribution of training vectors. The new method is illustrated on 6 benchmark datasets, finding simple and accurate models of data in form of prototype-based rules.