The approximation of two-dimensional highly correlated grey value functions can be performed using a linear model of the type f(x, y)=a+bx+cy. The set of plane parameters (PPs) (a, b, c) can be determined in the least squares sense for a block of size N*N pixels, for example. Starting with a block size of 2*2 pixels, it is shown that the PPs obey a recursive law such that the PPs of a 2N*2N block can be computed recursively when only the PPs of the four adjacent subblocks of size N*N in the lower decomposition level are known. This concept of recursive plane decomposition (RPD) is embedded in a quadtree data structure to obtain a new variable block size image coding algorithm that offers a high performance at a low computational cost. Extensive comparisons to other state-of-the-art image coding algorithms are reported.< <ETX xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">></ETX>