With the advancement in computational speed, transform coding has been a promising technique in image data compression. Traditionally, an image is divided into exclusive rectangular blocks or subimages. Each subimage is a partial scene of the original image and they are processed independently. In low-bit rate applications, block boundary can develop due to discontinuities between the subimages. A two-stage transform coding scheme to reduce such effect is proposed. The first stage transformation is applied to the subimages, each being a reduced under-sampled image of the original. The second stage transformation is applied to the transform coefficients obtained at the first stage. A simple coder with discrete Walsh-Hadamard transform and uniform quantization is used to compare the preliminary simulation results obtained from the proposed scheme and the traditional method.