For very low bit-rate video compression, wavelet based approaches suffer the ghost effect caused by larger temporal distortions. We propose an innovative temporal-domain wavelet filtering scheme called sub-grouping transformation (SGT), which divides wavelet coefficients in the temporal direction into sub-groups and applies the temporal wavelet transform to individual sub-groups. By splitting high motion coefficient arrays into smoother sub-groups, the proposed algorithm can achieve high compression ratio and reduce the ghost effect at the same time.