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Distributed video coding (DVC) is an emerging coding paradigm, aiming at low complexity encoders. This paper proposes a new scheme for transform domain Wyner-Ziv (WZ) video codec, where the key and WZ frames are encoded in multiple layers. The layers of the each frame are generated by sub sampling the 4×4 blocks in the spatial domain. After decoding each layer, side information (SI) refinement process is employed to improve the quality of SI to decode the next WZ layer. The codec performance is further improved by the decoder-driven adaptive skip/WZ control, estimated using the refined SI and the correlation noise. Rate-Distortion performance of the proposed scheme is tested with several sequences and performance improvements are noted.