A new image compression algorithm, Distortion Limited Wavelet Image Codec (DLWIC), is introduced. The codec is designed to be simple to implement, fast and have modest requirements for the working storage. It is shown, how the distortion of the result can be calculated while progressively coding a transformed image and thus how the mean square error of the result can be limited to a predefined value. The DLWIC uses zerotrees for efficient coding of the wavelet coefficients. Correlations between different orientation components are also taken into account by binding together the coefficients on the three different orientation components in the same spatial location. The maximum numbers of significant bits in the coefficients of all subtrees are stored in two-dimensional heap structure that allows the coder to test the zerotree property of a subtree with only one comparison. The compression performance of the DLWIC is compared to the industry standard JPEG compression and to an advanced...