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Abstract: This paper introduces k′-means algorithm that performs correct clustering without pre-assigning the exact number of clusters. This is achieved by minimizing a suggested cost-function. The cost-function extends the mean-square-error cost-function of k-means. The algorithm consists of two separate steps. The first is a pre-processing procedure that performs initial clustering and assigns at least one seed point to each cluster. During the second step, the seed-points are adjusted to minimize the cost-function. The algorithm automatically penalizes any possible winning chances for all rival seed-points in subsequent iterations. When the cost-function reaches a global minimum, the correct number of clusters is determined and the remaining seed points are located near the centres of actual clusters. The simulated experiments described in this paper confirm good performance of the proposed algorithm. [Copyright &y& Elsevier]