An image coding system based on combination of a multiresolution directional decomposition and a morphological dilation algorithm is proposed in this paper. The multiscale filter bank combines the recently introduced non-uniform quincunx directional filter bank at higher scales and the traditional wavelet filter bank at lower scales, to provide a sparse image representation. The coding algorithm then efficiently clusters the significant coefficients using progressive morphological dilation. The remaining scattered significant coefficients are coded with the aid of the Tarp filter. The proposed image coding algorithm achieves better results than the current state-of-the-art wavelet based coders, such as SPIHT and JPEG2000.