To improve the security level of image encryption based on chaos theory, a novel bit-level transform method which could enhance the dynamical performance of chaotic maps is proposed and a new image encryption algorithm based on a random irregular blocking method is also designed in this paper. Firstly, in the bit-level transform method, three chaotic maps are combined to generate a novel chaotic sequence. From a series of performance analyses results, the generated sequence not only successfully passes NIST tests, but also performs better than the original sequence, with a larger chaotic parametrial range, high complexity, etc. Then, an image encryption algorithm based on the newly generated chaotic sequence is proposed, in which a random irregular blocking method is adopted. Random irregular blocking could solve the problem of insecurity in the fixed blocking method. With a color Lena image as an encryption example, we analyze the security of the encryption algorithm by conducting a sufficiently large number of experiments using the encrypted image. For the encrypted Lena image, the average values of information entropy, NPCR, and UACI are 7.9931, 0.9961, and 0.3352, respectively. The experimental results and security analyses results provide evidence that the proposed encryption algorithm has good performance and can resist various typical attacks.