This paper presents a Markov random field (MRF)-based image inpainting algorithm using patch selection from groups of similar patches and optimal patch assignment through joint patch refinement. In patch selection, a novel group formation strategy based on subspace clustering is introduced to search the candidate patches in relevant source region only. This improves patch searching in terms of both quality and time. We also propose an efficient patch refinement scheme using higher order singular value decomposition to capture underlying pattern among the candidate patches. This eliminates random variation and unwanted artifacts as well. Finally, a weight term is computed, based on the refined patches and is incorporated in the objective function of the MRF model to improve the optimal patch assignment. Experimental results on a large number of natural images and comparison with well-known existing methods demonstrate the efficacy and superiority of the proposed method.