Since the encoding time for fractal encoding method is high and of importance, how to speed up the encoding is a key issue. In this paper, we propose a fast and efficient fractal coding algorithm, which is based on merged quadtree partitioning scheme. In this algorithm, the searching procedure in the finer level sufficiently uses the computing result of the coarser one. For the searches in finer levels, most of computation has been completed by searches in the coarser level, so the total search time reduces greatly. Besides, we use simple merged quadtree to reduce the number of transformation needed by encoding the whole image, so at the same PSNR, we also gain an increase of the compression ratio.