In this paper, we present a novel high bit rate LSB audio watermarking method that reduces embedding distortion of the host audio. Using the proposed two-step algorithm, watermark bits are embedded into higher LSB layers, resulting in increased robustness against noise addition. In addition, listening tests showed that perceptual quality of watermarked audio is higher in the case of the proposed method than in the standard LSB method. Conventionally, a perceptual limit of three bits per sample is imposed to the basic LSB audio steganography method. The proposed algorithm makes use of minimum error replacement method for LSB adjustment and modified error diffusion method for decreasing SNR value. Subjective listening test proved that high perceptual transparency is accomplished even if four LSBs of host audio signal are used for data hiding. Using the proposed two-step algorithm, hidden bits are embedded into the higher LSB layers, resulting in increased robustness against noise addition. In addition, listening tests showed that perceptual quality of watermarked audio is higher in the case of rite proposed method than the perceptual quality obtained using the standard LSB method. We present a novel high bit rate LSB audio watermarking method. The basic idea of the proposed LSB algorithm is watermark embedding that causes minimal embedding distortion of the host audio.