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In pyramidal wavelet representation, an image is decomposed into multiresolution and multifrequency subbands with sets of tree-structured coefficients, i.e. a spatial orientation tree which consists of coefficients at different resolutions and different orientations but associated with the same spatial location. The magnitudes of the coefficients in these trees measure the signal activity level of the corresponding spatial areas. A novel coefficient partitioning algorithm is introduced for splitting the coefficients into two sets using a spatial orientation tree data structure. By splitting the coefficients, the overall theoretical entropy is reduced due to the different probability distributions for the two coefficient sets. In the spatial domain, it is equivalent to identifying smooth regions of the image. A lossless coder based on this spatial coefficient partitioning has a better coding performance than other wavelet-based lossless image coders such as S + P and JPEG-2000.