Blocks of a frame of a video stream can be encoded using lossless intra-prediction encoding. The compression ratio of lossless intra-prediction encoding can be improved by performing lossy encoding on the intra-predicted residual. The encoded residual is then decoded and the reconstructed residual is subtracted from the original residual. The resulting difference residual is encoded using lossless encoding and included in the output bitstream along with the lossy encoded residual, permitting the block to be decoded with no loss at a decoder.