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Scalable video coding (SVC) allows an encoded bitstream to be brought down in scale or quality without the need for further processing. This study presents a wavelet-based motion-compensated system for SVC. The motion vectors are encoded in a scalable manner that employs a palette of motion vectors split into layers, which gives good scalability and low bit rates. The algorithms were designed to keep the complexity and memory requirements low, making the system suitable for hardware implementation. Experimental results show that the compression performance of the proposed system compares well with the joint scalable video model reference software for scalable video extension to H.264/AVC, while providing a finer and larger range of quality scalability.