This paper presents a novel video compression system with a low complexity encoder. Based on the Slepian-Wolf theorem and the Wyner-Ziv theorem, a video is intraframe coded and interframe decoded in this system. The system performance, the compression rate and the video quality, is affected by the difference between the source information and the side information. To increase the accuracy of the side information, a modified three dimensional recursive search block matching is proposed. The resulting motion vectors preserve the true motion of objects because of the spatial and temporal consistency. The results obtained show a significant improvement over full search block matching algorithm in the term of the rate-distortion measure. The different quantizer design and puncturing table reduce the necessary parity bits for the decoding, and also increase the PSNR. The system performance is also much closer to H.263 interframe coding.