A PAL-based logic block is the core of great majority of contemporary CPLD devices. The purpose of the paper is to present a novel method of two-stage PAL decomposition. The idea of the method consist in sequential search for a decomposition providing feasibility of implementation of the free block in a PAL-based logic block containing a limited number of product terms. The proposed approach is an alternative to the classical method based on two-level minimization of separate single-output functions. Results of experiments, which are also presented, prove that the proposed algorithm leads to significant reduction of chip area in relation to the classical method, especially for CPLD structures consisting of PAL-based logic blocks containing 2i (a power of 2) product terms.