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Wireless Sensor Networks are gaining importance in diverse applications. The sensor nodes are battery operated and hence energy aware architecture is considered for increasing the lifetime of the sensor network. In this paper clustering algorithm based on spatial correlation is implemented to improve the performance of Distributed Source Coding (DSC) Algorithm. Results show that the proposed clustering algorithm reduces the bit error rate and hence requires lesser number of retransmission. FPGA implementation of the DSC algorithm using low power techniques is implemented.