In this paper, an adaptive reversible data hiding scheme for encrypted images is proposed. Content owner uses an analogues stream-cipher and block permutation to encrypt non-overlapping blocks of original image through encryption key. Then, data hider classifies encrypted blocks into two sets corresponding to smooth and complex regions in original image. With data-hiding key, spare space is vacated to accommodate additional bits by compressing LSBs of the block set corresponding to smooth region. Separable operations of data extraction, direct decryption and image recovery are conducted by receiver according to the availability of encryption key and data-hiding key. Through an accurate prediction strategy, perfect image recovery is achieved. Since only a portion of blocks are modified during embedding, the directly-decrypted image quality is satisfactory. Also, more bits can be embedded into the blocks belonging to smooth set, hence, embedding rate is acceptable. Experimental results demonstrate the effectiveness of our scheme. (C) 2018 Elsevier B.V. All rights reserved.