This paper presents a hybrid image compression algorithm based on a novel adaptive quantization algorithm referred to as Fast Boundary Adaptation Rule (FBAR) combined with the Differential Pulse Code Modulation (DPCM) technique. The proposed image compression technique results in enhanced image quality as compared to FBAR-based compression. Our proposed system is still much simpler compared to other transform coding for image compression, such as JPEG that are widely adopted as the international standard. This made our system a viable candidate for developing on chip image sensor with data compression processor. The proposed compression algorithm was validated through FPGA implementation and was interfaced with a CMOS image sensor for real life applications. An 8:1 compression ratio with fairly good image quality were achieved with an average of 30dB PSNR as compared to 25dB for FBAR.