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This paper introduces the concept of warped discrete cosine transform (WDCT) and an image compression algorithm based on the WDCT. The proposed WDCT is a cascade connection of a conventional DCT and all-pass filters whose parameters can be adjusted to provide frequency warping. In the proposed image compression scheme, the frequency response of the all-pass filter is controlled by a set of parameters with each parameter for a specified frequency range. For each image block, the best parameter is chosen from the set and is sent to the decoder as a side information along with the result of corresponding WDCT coefficients. It is shown that the WDCT can be implemented by a single matrix computation like the DCT. The proposed algorithm outperforms the DCT based compression, for high bit rate applications and for images with high frequency components.