This research focuses on the implementation of the efficient image compression system among the many potential applications of a transform imager system. The study includes implementing the image compression system using a transform imager, developing a novel image compression algorithm for the system, and improving the performance of the image compression system through efficient encoding and decoding algorithms for vector quantization. A transform imaging system is implemented using a transform imager, and the baseline JPEG compression algorithm is implemented and tested to verify the functionality and performance of the transform imager system. The computational reduction in digital processing is investigated from two perspectives, algorithmic and implementation. Algorithmically, a novel wavelet-based embedded image compression algorithm using dynamic index reordering vector quantization (DIRVQ) is proposed for the system. DIRVQ makes it possible for the proposed algorithm to achieve superior performance over the embedded zero-tree wavelet (EZW) algorithm and the successive approximation vector quantization (SAVQ) algorithm. However, because DIRVQ requires intensive computational complexity, additional focus is placed on the efficient implementation of DIRVQ, and highly efficient implementation is achieved without a compromise in performance.