This paper presents a new framework for wavelet based scalable video coding. Like some other video coders, this new video coder also encodes some frames (I-frame) independently and other frames (P-frame) predictively. The I-frame is encoded by a scalable image coder with LCBiD coefficient coding scheme. This is a wavelet based image coder of very low implementation complexity. A P-frame is only dependent on the frame just encoded. One major difficulty in designing a scalable video codec is how to obtain a highly scalable video stream while the inter-frame dependency is still efficiently exploited. This paper describes a scheme which is referred to as Layered Motion Compensation and Coding (LMCC) to resolve this conflict. With LMCC, the motion compensation is performed in the coefficient domain. The prediction residue is calculated in a way that the layered structure is strictly enforced across the entire Group of Pictures (GOP), no matter how many frames there are in a GOP. The residue coding scheme is also based on LCBiD with introduction of conditional sign bit encoding to maintain the layered structure obtained in the motion compensation stage to achieve an SNR scalable video stream. The resolution scalability is realized by coding each subband of each frame independently.