A spatial domain perceptual image codec based on subsampling and perceptual quantization (SSPQ) guided by the just-noticeable distortion (JND) profile is proposed. SSPQ integrates perceptual image coding and progressive transmission in one framework. The input image is first subsampled by a factor of two in both dimensions and the subsampled image is compressed without loss. The subsampled image provides a basis for both predicting the input pixels by interpolation and estimating the JND values for each pixel. Residual quantization thresholds are set to the estimated JND values for a perceptually tuned compression. Quantized residuals are progressively encoded by a context-based Golomb coder with run-length coding capacity. Experimental results show over 50% improvement in compression performance on average for the proposed SSPQ codec compared to the lossless JPEG-LS.