Reduction of motion artifact and power saving are crucial in designing a wearable pulse oximeter for long-term telemedicine application. In this paper, a novel algorithm, minimum correlation discrete saturation transform (MCDST) has been developed for the estimation of arterial oxygen saturation (SaO2), based on an optical model derived from photon diffusion analysis. The simulation shows that the new algorithm MCDST is more robust under low SNRs than the clinically verified motion-resistant algorithm discrete saturation transform (DST). Further, the experiment with different severity of motions demonstrates that MCDST has a slightly better performance than DST algorithm. Moreover, MCDST is more computationally efficient than DST because the former uses linear algebra instead of the time-consuming adaptive filter used by latter, which indicates that MCDST can reduce the required power consumption and circuit complexity of the implementation. This is vital for wearable devices, where the physical size and long battery life are crucial.