IMAGE PROCESSING SYSTEM WITH BINARY DECOMPOSITION AND METHOD OF OPERATION THEREOF

An image processing system, and a method of operation thereof, includes: a pre-processing module for receiving a raw image block of a source image from an imaging device; a wavelet transform module, coupled to the pre-processing module, for forming a wavelet coefficient block by performing a wavelet transform operation on the raw image block; and an encoding module, coupled to the wavelet transform module, for initializing a region significance vector based on the wavelet coefficient block, for generating a code value based on the region significance vector at an index position of a bit region in a wavelet bitplane of the wavelet coefficient block, for forming an encoded block based on the code value, and for generating a bitstream based on the encoded block for decoding into a display image to display on a display device.