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We present an algorithm for illumination invariant 3D model based tracking and video compression. While model-based coding schemes are well developed, the compression rate reduces if the illumination conditions within the sequence change drastically. Our proposed scheme can accurately track under both slow and drastic changes of lighting and achieves a significant reduction in the bit rate compared to a scheme that does not consider any illumination models. The tracking scheme is based on a recently developed framework showing that the joint motion and illumination space of video sequences is approximately bilinear. We show results of the reconstructed video sequences and the reduction in the distortion (for a constant bit rate) for a compression scheme that uses the illumination invariant tracking algorithm.