An algorithm to improve the image compression ratio, by applying low-pass filtering before the compression process is presented. Pre-filtering images prior to encoding can remove high frequencies of the original image, and thus improve the overall performance of the coder. The image degradation caused by the filter combined with the non- linear transformation of a typical compression algorithm reduce the entropy of the original image, thus higher compression ratios can be achieved. The perceived image at the decoder side is reconstructed according to a priory knowledge of the degraded filter by applying decompression and inverse filtering. The results of this work show an improvement of the compression ratio compare to the original Joint Picture Experts Group (JPEG) algorithm, with only small reduction of Mean Square Error. Our algorithm also succeeds to reduce the blocking effect that exists in the original JPEG algorithm.