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In this paper, we propose a new encoding algorithm for matching pursuit image coding. We show that coding performance is improved when correlations between atom positions and atom coefficients are both used in encoding. We find the optimum tradeoff between efficient atom position coding and efficient atom coefficient coding and optimize the encoder parameters. Our proposed algorithm outperforms the existing coding algorithms designed for matching pursuit image coding. Additionally, we show that our algorithm results in better rate distortion performance than JPEG 2000 at low bit rates.