This letter proposes an efficient wavelet-based Fine Granularity Scalable (FGS)coding scheme, where the base layer is encoded with a newly designed wavelet-based coder, andthe enhancement layer is encoded with Progressive Fine Granularity Scalable (PFGS) coding.This algorithm involves multi-frame motion compensation, rate-distortion optimizing strategywith Lagrangian cost function and context-based adaptive arithmetic coding. In order to improveefficiency of the enhancement layer coding, an improved motion estimation scheme that uses both This letter proposes an efficient wavelet-based Fine Granularity Scalable (FGS) coding scheme, where the base layer is encoded with a newly designed wavelet-based coder, and the enhancement layer is encoded with Progressive Fine Granularity Scalable (PFGS) coding.This algorithm involves multi-frame motion compensation, rate-distortion optimizing strategy with Lagrangian cost function and context-based adaptive arithmetic coding. In order to improve the efficiency of the enhancement layer coding, an improved motion estimation scheme that uses both