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The International Standards Organization (ISO) has proposed a family of standards for compression of image and video sequences, including the JPEG, MPEG-1, and MPEG-2. The latest MPEG-4 standard has many new dimensions to coding and manipulation of visual content. A video sequence usually contains a background object and many foreground objects. Portions of this background may not be visible in certain frames due to the occlusion of the foreground objects or camera motion. MPEG-4 introduces the novel concepts of video object planes (VOPs) and Sprites. A VOP is a visual representation of real world objects with shapes that need not be rectangular. Sprite is a large image composed of pixels belonging to a video object visible throughout a video segment. Since a sprite contains all parts of the background that were at least visible once, it can be used for direct reconstruction of the background VOP. Sprite reconstruction is dependent on the mode in which it is transmitted. In the static sprite mode, the entire sprite is decoded as an Intra VOP before decoding the individual VOPs. Since sprites consist of the information needed to display multiple frames of a video sequence, they are typically much larger than a single frame of video. Therefore, a static sprite can be considered as a large static image. In this paper, a novel solution to address the problem of spatial scalability has been proposed, where the sprite is encoded in discrete wavelet transform (DWT). A lifting kernel method of DWT implementation has been used for encoding and decoding sprites. Modifying the existing lifting scheme while maintaining it to be shape-adaptive results in a reduced complexity. The proposed scheme has the advantages of: 1) avoiding the need for any extensions to image or tile border pixels and is hence superior to the discrete cosine transform-based low latency scheme (used in the current MPEG-4 verification model) and 2) mapping the in place computed wavelet coefficients into a zero-tree structure without actually rearranging them, thereby saving allocation of additional memory. The proposed solutions provide efficient implementation of the sprite decoder, making possible a VLSI realization with a reduced real estate.