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A transform tree code, theoretically optimal for stationary Gaussian sources and the squared-error distortion measure at all rates, is adaptively applied in a blockwise fashion to the encoding of images. The rate of the basic tree code is 0.5 bits/pel and the overhead rate ranges from .24 to .36 bits/pel. A smoothing and block quantization is used for effective reduction of the rate for transmitting a set of eigenvalue estimates, which comprise the main contribution to the overhead. In encoding simulations the adaptation with smoothing and quantization gave better performance with a block size of 16 at lower search intensity and with more uniformity and less blocking effect. At a block size of 32, where the reconstruction quality is higher, the same adaptation technique yielded nearly the same results as the non-adaptive one at the same overall rate, but with a savings of search and computational complexity.