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A compression scheme of defect image based on wavelet analysis is proposed, according to characteristic of MFL (Magnetic Flux Leakage) signal, in which new wavelet base functions are redesigned by adjusting its zeros and apices of the orthogonal function. The functions are used to transform the defect image and all the wavelet coefficients are scaled according to the updated JPEG compression table. At last, arithmetic coder codes the results to get compressed image. The experiment shows that image distortion caused by image compression won't affect the defect to be analysed if the compression ratio is less than 30%.