A class of vector quantizers with memory that are known as finite state vector quantizers (FSVQs) in the image coding framework is investigated. Two FSVQ designs, namely side match vector quantizers (SMVQs) and overlap match vector quantizers (OMVQs), are introduced. These designs take advantage of the 2-D spatial contiguity of pixel vectors as well as the high spatial correlation of pixels in typical gray-level images. SMVQ and OMVQ try to minimize the granular noise that causes visible pixel block boundaries in ordinary VQ. For 512 by 512 gray-level images, SMVQ and OMVQ can achieve communication quality reproduction at an average of 1/2 b/pixel per image frame, and acceptable quality reproduction. Because block boundaries are less visible, the perceived improvement in quality over ordinary VQ is even greater. Owing to the structure of SMVQ and OMVQ, simple variable length noiseless codes can achieve as much as 60% bit rate reduction over fixed-length noiseless codes.