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A new watermarking approach based on lapped orthogonal transform (LOT) is proposed. It provides better imperceptibility by reducing the blocking effects which exist in most block-based image coding transforms like JPEG. The proposed scheme performs the LOT to the cover image, modifies the LOT coefficients to hide the watermark bits according to the given user-key, and executes the inverse LOT to generate a watermarked image. It requires no original cover image to be introduced during extraction, and it has strong robustness under the JPEG attacks.