Abstract: A larered image coding scheme based on subband decomposition is presented for ATM networks. It divides image information into two classes according to spatial frequencies of subbands. The Low-frequency band is assigned a high priority, and coded by means of standard modules such as MC/DPCM, DCT and VLC, to keep its compatibility. The high-frequency bands, which are liable to be discarded during channel congestion, are assigned a low priority and coded by visual pattern. Computer simulations show that image quality degradation caused by cell loss could be reduced through this way. Furthermore, A new alogrithm, edge location Compensation (ELC), is presented to reconstruct the would-be lost cells of high-frequency subbands via edge matching.