In this paper a novel image coding scheme, based on coinbination of fractal and vector quantization techniques is proposed. A two-level coding scheme is described. In the first level, a form of vector quantization is employed to get a rough first-order approximation of the image. In the second level, the residual image, produced after subtracting thc first-order approximation limn the original image, is coded using a simple, fixed-block size fractal technique. Using fixed block size, the algorithm has a very simple and regular structure. The benefit of the proposed technique is the reduction of' the computational complexity in comparison to traditional fractal coding, while the image quality is kept i n high levels