A video processing chip capable of adjusting aspect ratio and a method of displaying an image thereby are provided. The video processing chip outputs an adjusted image signal according to a video signal to an LCD panel to display an image. The video processing chip includes a video processor, a ratio detector, a timing controller, and a multiplexer. The video processor generates an image signal according to the video signal. The ratio detector detects the aspect ratio of the video signal, and outputs a ratio control signal according to a ratio setting value. The timing controller outputs a vertical blanking signal, a horizontal blanking signal, and a blanking data in responding to the ratio control signal. The multiplexer selects the blanking data signal or the image signal as the adjusted image signal to be outputted, so that the displayed image has the aspect ratio corresponding to the ratio setting value.