Videos are developing in the trends of Ultra High Definition (UHD), High Frame Rate (HFR), High Dynamic Range (HDR), Wide Color Gammut (WCG) and high fidelity, which provide users with more realistic visual experiences. However, the amount of video data increases exponentially and requires high efficiency video compression for storage and network transmission. Perceptually optimized video coding aims to exploit visual redundancies in videos so as to maximize compression efficiency. In this paper, we present a systematic survey on the recent advances and challenges on perceptually optimized video coding. Firstly, we present problem formulation and framework of perceptually optimized video coding, which includes visual perception modelling, visual quality assessment and perception guided coding optimization. Secondly, the recent advances on visual factors, key computational visual models and quality assessment models are presented. Thirdly, we do systematic review on perceptual video coding optimizations from four key aspects, which includes perceptually optimized bit allocation, rate-distortion optimization, transform and quantization, filtering and enhancement. In each part, problem formulation, working flow, recent advances, advantages and challenges are presented. Fourthly, perceptual coding performance of latest coding standards and tools are experimentally analyzed. Finally, challenging issues and future opportunities on perceptual video coding are identified.CCS Concepts: • Computing methodologies → Image compression.