Manual counting and evaluation of red blood cells with the presence of malaria parasites is a tiresome, time-consuming process that can be altered by environmental conditions and human error. Many algorithms were presented to segment red blood cells for subsequent parasitemia evaluation by machine learning algorithms. However, the segmentation of overlapping red blood cells always has been a challenge. Marker-controlled watershed segmentation is one of the methods that was implemented to separate overlapping red blood cells. However, a high number of overlapped red blood cells were still an issue. We propose a novel approach to improve the segmentation efficiency of marker-controlled watershed segmentation. Local minimum histogram background segmentation with a selective hole filling algorithm was introduced to improve segmentation efficiency of marker-controlled watershed segmentation on a high number of overlapping red blood cells. The local minimum was selected on the smoothed histogram for background segmentation. The combination of selective filling, convex hull, and Hough circle detection algorithms was utilized for the intact segmentation of red blood cells. The markers were computed from the resulted mask, and finally, marker-controlled watershed segmentation was applied to separate overlapping red blood cells. As a result, the proposed algorithm achieved higher background segmentation accuracy compared to popular background segmentation algorithms, and the inclusion of corner details improved watershed segmentation efficiency.