Dynamic channel allocation (DCA) schemes adapt to the time variant demand for channels in cellular mobile telephony systems. In this paper we propose a DCA scheme that smoothly changes the channel allocation by solving the following problem. Given a cell structure, a collection of channels, the frequency reuse distance, an allocation of channels to cells, and the number of active connections per cell, accommodate a new call or a new handover by minimally reconfiguring the established allocation of channels to cells. First, this problem is formulated as 0–1 quadratic programming problem. Next, we present a distributed, heuristic solution to the problem, which is based on the observed behaviour of the optimal algorithm. Finally, we present some simulation results on the performance and the feasibility of the distributed algorithm. © 1997 John Wiley & Sons, Ltd.