A novel and simple quality controlled ECG compression algorithm is proposed using Wavelet energy based diagnostic distortion (WEDD) measure, which localizes the error between the original and the reconstructed signals in the feature space. The compression algorithm is based on Wavelet transform, energy based thresholding and an adaptive quantization scheme. The quality control criterion allows clinically acceptable reconstructions while maintaining high compression ratios. The advantage of the proposed algorithm is that the threshold value and the quantization bits are chosen automatically in few iterations so that the quality of the reconstructed signal is controlled. © 2007 IEEE.