This paper proposes an image compression algorithm that adopts projection scheme on wavelet transform domain of image signal. Wavelet decomposed image is encoded by the result of projection along one direction out of eight which approximates the coefficients most closely to the originally transformed coefficients. These projectrion data are vector quantized using separate codebooks depending on the decomposition level and orientation of decomposed of image. Experimental results reveals that proposed scheme shows excellent performance in PSNR manner and also shows good subjective quality.