To solve the shortcomings of low energy efficiency and contrast of traditional LCDs, and considering the advantages of mainstream backlight construct and local dimming technology, a local dimming algorithm for edge-lit LED backlight is proposed. The method consists of three parts: backlight level dimming, LED allocation and pixel compensation algorithm. In backlight level dimming algorithm, the input image is divided into several blocks and each block image luminance is calculated. Then a resource allocation and transport model is introduced to establish the mapping relationship between block luminance and LED strings in allocation algorithm. In pixel compensation, first, the backlight diffusion effect of the light guide plate (LGP) and diffusion film is acquired from simulated with low-pass filters. Then, the LC pixel is compensated based on original image pixel and backlight effect. The algorithm is simulated, and a TV prototype is developed to test actual display effect. The actual test results show that the average power reduction reaches 20.57% and the Structural Similarity (SSIM) of original and dimmed image is 0.985. The proposed algorithm presents a good power saving and display effect as well as light and thin backlight structure.