In the field of image watermarking, research has been mainly focused on gray scale image watermarking; the extension to the color case still represents one of the open issues watermarking researchers are faced with. To solve the problem of the correlation among image color bands, a new approach is proposed here which is based on the exploitation of the de-correlation property of the Karhunen-Loeve transform (KLT). The KLT is applied to the red, green, blue components of the host image, then watermarking is performed independently in the discrete Fourier transform (DFT) domain of the KL-transformed bands. In order to preserve watermark invisibility, embedding is achieved by modifying the magnitude of mid-frequency DFT coefficients according to an additivemultiplicative rule. In detection, KL de-correlation is exploited to design an optimum watermark decoder. In particular, based on the Neyman-Pearson criterion, the watermark presence is revealed by comparing a likelihood function against a threshold. Experimental results are presented proving the robustness of the algorithm against the most common image manipulations, and its superior performance with respect to techniques based on luminance watermarking.