This paper proposes a new approach to combined spatial (Intra) prediction and adaptive transform coding in block-based video and image compression. Context-adaptive spatial prediction from available, previously decoded boundaries of the block, is followed by optimal transform coding of the prediction residual. The derivation of both the prediction and the adaptive transform for the prediction error, assumes a separable first-order Gauss-Markov model for the image signal. The resulting optimal

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... ansform is shown to be a close relative of the sine transform with phase and frequencies such that basis vectors tend to vanish at known boundaries and maximize energy at unknown boundaries. The overall scheme switches between the above sine-like transform and discrete cosine transform (per direction, horizontal or vertical) depending on the prediction and boundary information. It is implemented within the H.264/AVC intra mode, is shown in experiments to significantly outperform the standard intra mode, and achieve significant reduction of the blocking effect.