Several compression schemes for Internet video utilize block-based conditional replenishment (CR) where block updates are coded independently of the past. In the current Internet video tools, blocks are compressed with a single-layer representation. We propose a new approach that compresses image blocks using a layered representation. Our layered-DCT (LDCT) compression algorithm, derived from progressive JPEG, has been combined with CR and optimized for efficient software implementation to provide an improved solution for Internet packet video. Although LDCT is constrained to a layered representation, its compression performance is as good or better than the single layer Intra-H.261 and baseline JPEG coding schemes.