We propose an image compression algorithm that combines the W-transform, normalized quantization, and entropy coding to enhance the compression ratio. Experimental results show that the proposed algorithm achieves a higher compression rate compared to the JPEG and the other previously proposed W-transform based method. Since the W-transform plays an important role in multi-resolution image processing applications and is the core operation in our image compression system, we realize it on a VLSI chip in order to increase the system speed performance. The processor can compute the W-transform of any length (even or odd) in a very high throughput rate using only 8 arithmetic processing elements. The physical design of the processor based on 0.6 /spl mu/m cell library is also included.