A prediction error signal and a prediction state signal are generated for each of a plurality of picture elements (or bit planes or gray codes) to be encoded. The picture error signal is based on a plurality of previously encoded picture element data (or bit plane or gray code). The prediction state signal indicates the probability of the prediction error signal being accurate in one of two probability states. The prediction error signals are classified into two groups according to the probability state indicated by the corresponding prediction state signal. The prediction error signals are then reordered according to a predetermined algorithm. Thereafter, the reordered prediction error signals are run length coded based on the occurrences of incorrectly predicted error signals in the reordered list.