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This paper presents a directional transform scheme for coding interprediction errors in block-based hybrid video coding. It proposes a two-layer transform structure, where the first layer uses discrete wavelet transform to compact the residue energy to the LL band and then the second layer uses 2-D nonseparable directional transforms to deal with the arbitrary edge directions in the four subbands. By doing this, the edges in a macroblock are efficiently compacted to a few coefficients and at the same time the overhead used to indicate the transform directions is affordable. Experimental results show that the proposed scheme provides peak signal-to-noise ratio gain up to 0.46 dB, compared with H.264/AVC High Profile.