Distributed video coding (DVC) system has been proposed to reduce encoder complexity by using the correlation of frames in decoders. Since the block based motion estimation operation is not performed in the encoder of DVC system, lapped transforms, in which adjacent two blocks are transformed into one block, can be efficiently used in the DVC system. In this paper, an efficient DVC system using lapped transforms is proposed. The overlapped block motion compensated interpolation is used to produce side information, and the corresponding correlation noise between original Wyner-Ziv frame and side information is modeled. Extensive computer simulations show that the proposed DVC system outperforms conventional DVC systems.