The existing fragile watermarking algorithms based on blocks can’t drastically avoid the independence between the blocks. A novel variable-payload self-embedding fragile watermarking algorithm is proposed. Firstly, the original image is divided into blocks with the size of 2×2 and the average value of each block is calculated. Then a new image called average-image can be composed of the obtained average values. The watermark is not generated for every signal block, but encoded statistically according to the correlation between the pixels of average-image. The watermark is embedded into 2-LSB (least significant bit) of the original image. As a result, the length of the watermark is variable due to the correlation of the image. That is to say, for a texture complex image the watermark is longer, but for a smooth image the watermark is shorter. And moreover, the independence of the blocks can be broken, so it has a better ability to resist attacks. As the authentication, string matching is used to match the blocks and the watermark. For the blocks which are not matched, group matching is used to re-match. The theoretic analysis and the simulation results show that the proposed algorithm can not only thwart the collage attack and locate tampered blocks accurately, but also has better non-visibility.