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A perceptual non-expansive image compression scheme using the nearly-orthogonal wavelets is presented in this paper. The proposed approach differs from the conventional design scheme by incorporating the human visual system characteristics directly in each sub-band of the wavelet decomposed image. The enhancement in the visual quality of the reconstructed image is achieved by using the proposed contrast sensitivity function masking at each decomposition level during wavelet transformation phase in the compression system. The explored biorthogonal nearly coiflet wavelet is used to achieve an improvement in the compression performance for low and medium bit rate applications. Extensive simulations are carried out using the proposed approach and the results compared with those of some of the existing techniques.