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The paper presents a medical image coding technique that is suitable for interactive telemedicine over networks. The new encoding scheme allows a server to transmit progressively only a part of a compressed image over a network as requested by a client. This technique is different from the region scalable coding scheme in JPEG 2000 since it does not require that a region of interest (ROI) be defined when encoding occurs. In our method, a medical image is encoded at full resolution and stored in the server. A user can receive a basic image at low resolution and then specify a ROI. The server can then provide full resolution for the ROI. Our technique allows a user to select the ROI after the compression has been done. We employ integer wavelet lifting to support lossless coding for medical images that strictly require lossless compression. The paper shows the benefits of the proposed technique with examples and simulation results.