In this paper, we propose a novel, discrete wavelet transform (DWT) domain implementation of our previously proposed, pioneering block-based disparity compensated predictive coding algorithm for stereo image compression. Under the present research context we perform predictive coding in the form of pioneering block search in the sub-band domain. The resulting transform domain predictive error image is subsequently converted to a so-called wavelet-block representation, before being quantized and entropy coded by a JPEG-like CODEC. We show that the proposed novel implementation is able to effectively transfer the inherent advantages of DWT-based image coding technology to efficient stereo image pair compression. At equivalent bit rates, the proposed algorithm achieves peak signal to noise ratio gains of up to 5.5 dB, for reconstructed predicted images, as compared to traditional and state of the art DCT and DWT-based predictive coding algorithms.