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An efficient adaptive encoding technique using a new implementation of the Fast Discrete Cosine Transform (FDCT) for bandwidth compression of monochrome and color images is described. Practical system application is attained by maintaining a balance between complexity of implementation and performance. FDCT sub-blocks are sorted into four classes according to level of image activity, measured by the total ac energy within each sub-block. Adaptivity is provided by distributing bits between classes, favoring higher levels of activity over lower levels. Excellent performance is demonstrated in terms of mean square error and direct comparison of original and reconstructed images. Results are presented for both noiseless and noisy transmission at a total rate of 1 bit and 0.5 bit per pixel for a monochrome image and for a total rate of 2 bits and 1 bit per pixel for a color image. In every case the total bit rate includes all overhead required for image reconstruction and bit protection.