Driving circuit and method for increasing effective bits of source drivers

An LCD driving circuit and method for increasing effective bit(s) of the source driver is disclosed. A reference voltage generator generates a group of compensated reference voltage levels that are interlaced with original reference voltage level of original reference voltage generator. One of the multiple groups of reference voltage levels is selected by one or more least significant bits (LSBs), and is then inputted to digital-to-Analog converter of the source driver under control of the one or more least significant bits (LSBs), thereby effectively and economically enhancing the gray levels of the display on the LCD panel.