Some compressed images using Vector Quantization algorithm suffers from blocking artifacts which degrades the visual appeal of the image. Present study proposes a hybrid vector quantization method applicable on de-correlated color model. As luminance channel carries image information and loss of image information results in degradation of the visual appeal of an image, so aim of this study is focused on retaining more image information during compression process. For luminance channel compression, a new four level quantization based compression method is developed. Luminance channel is partitioned into smaller blocks. Then for each block, four level quantization is applied which local to the current block only. This results many level luminance value effectively for the whole image. It helps to retain better information. Chrominance channels are compressed using conventional Vector Quantization. This hybrid compression method improves visual quality of the decompressed image reasonably compared to VQ. The proposed method is applied on many standard images found in literature and images of UCIDv.2 color image database. Results are analyzed in terms of Peak Signal to Noise Ratio, Structure Similarity Index and space requirement reduction for compressed image using the method. Experimental results show that proposed method retains better quality of image in terms of PSNR and SSIM than Vector Quantization and Modified Vector Quantization. This method reduces storage space requirement for the compressed images in the range of 84% to 89%.