Embedded zerotree of wavelet coefficient (EZW) algorithm has become an effective way of compressing images. The use of multistage vector quantizer (MSVQ) provides successive-approximation coding for vectors. A new algorithm is proposed that provides good quality of reconstructed images at very low bit rates. The algorithm uses successive-approximation quantization of both scalars and vectors on wavelet coefficients of the image. Successive-approximation quantization of scalars and vectors is done using EZW and MSVQ algorithms respectively. EZ W algorithm is applied to wavelet coefficients belonging to coarser level subbands and MSVQ is applied to vectors of wavelet coefficients belonging to finer level subbands. The pro-posed method further uses static Huffman coding to achieve more compression.