In this paper, a wavelet image coding scheme exploiting the correlation of neighboring VQ indices in eh wavelet domain is proposed. the codewords in each sub-codebook are re-ordered in terms of their energies in order to increase the correlation of he indices. Then, the generated indices after VQ can be further encoded by non-adaptive DPCM/Huffman method. LBG algorithm and a fast-PNN algorithm using k-d trees are used for generating a multiresolution codebook. Experimental results show that or scheme outperforms the ordinary wavelet VQ and JPEG at low bit rates.