Lossless compression techniques are essential in some applications, such as archival and communication of medical images. In this paper, an improvement on the Joint Bi-Level Imaging Group (JBIG) method for continuous-tone image compression is proposed. The method is an innovative combination of multiple decorrelation procedures, namely a lossless Joint Photographic Experts Group (JPEG)-based predictor, a transform-based inter-bit-plane decorrelator, and a JBIG-based intra-bit-plane decorrelator. The improved JBIG coding scheme outperformed lossless JPEG coding, JBIG coding, and the best mode of compression with reversible embedded wavelets (CREW) coding, on the average bit rate, by 0.56 (8 bits/component images only), 0.14, and 0.12 bits per pixel with the JPEG standard set of 23 continuous-tone test images. The compression technique may be easily incorporated into currently existing JBIG-based products. A high-order entropy estimation algorithm is also presented, which indicates the potentially achievable lower bound bit rate, and should be useful in decorrelation analysis as well as in the design as cascaded decorrelators.