Abstract : Diabetic macular edema (DME) is characterized by hard exudates. In this article, we propose a novel statistical atlas based method for segmentation of such exudates. Any test fundus image is first warped on the atlas co-ordinate and then a distance map is obtained with the mean atlas image. This leaves behind the candidate lesions. Post-processing schemes are introduced for final segmentation of the exudate. Experiments with the publicly available HEI-MED data-set shows good performance of the method. A lesion localization fraction of 82.5% at 35% of non-lesion localization fraction on the FROC curve is obtained. The method is also compared to few most recent reference methods.