Transform-domain downward conversion (TDDC) for image coding is usually implemented by discarding some high-frequency components from each transformed block. As a result, a block of fewer coefficients is formed, and a lower compression cost is achieved due to the coding of only a few low-frequency coefficients. In this paper, we focus on the design of a new TDDC-based coding method by using our proposed interpolation-compression directed filtering (ICDF) and error-compensated scalar quantization (ECSQ), leading to the compression-dependent TDDC (CDTDDC)-based coding. More specifically, ICDF is first used to convert each macro-block into an coefficient block. Then, this coefficient block is compressed with ECSQ, resulting in a smaller compression distortion for those pixels that locate at some specific positions of a macro-block. We select these positions according to the 4:1 uniform sub-sampling lattice and use the pixels locating at them to reconstruct the whole macro-block through an interpolation. The proposed CDTDDC-based coding can be applied to compress both grayscale and color images. More importantly, when it is used in the color image compression, it offers not only a new solution to reduce the data-size of chrominance components but also a higher compression efficiency. Experimental results demonstrate that applying our proposed CDTDDC-based coding to compress still images can achieve a significant quality gain over the existing compression methods.