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Steganography is the art and science of hiding secret data to provide a safe communication between two parties and it is a prominent branch in the information hiding research area. This paper presents a new steganographic method based on predictive coding and embeds secret message in quantized error values via quantization index modulation (QIM). The proposed method is superior to previous methods in that it can make a satisfying balance among the most concerned criteria in steganography which are imperceptibility, hiding capacity, compression ratio and robustness against attacks. The performance of the proposed method is evaluated by several experiments on gray-level images with different textural properties. The new method is also compared with two renowned steganographic methods namely Jsteg and steganography based on predictive coding (SBPC). The results obtained from the experiments show that the proposed method has high visual quality and less histogram distortion while it has satisfactory compression ratio and embedding size.