Peer-to-peer (P2P) content distribution is able to greatly reduce dependence on infrastructure servers and scale up to the demand of the Internet video era. However, the rapid growth of P2P applications has also created immense burden on service providers by generating significant ISP-unfriendly traffic, such as cross-ISP and inter-POP traffic. In this work, we consider the unique properties of peer-assisted Video-on-Demand (VoD) and design a distributed rate allocation algorithm, which can significantly cut down on ISP-unfriendly traffic without much impact on server load. Through extensive packet-level simulation with both synthetic and real-world traces, we show that the rate allocation algorithm can achieve substantial additional gain, on top of previously proposed schemes advocating ISP-friendly topologies.