In this paper, we present a new image compression scheme, Projection-VQ, based on reconstruction from vector quantized projections. We can easily deal with the blocks of larger size in Projection-VQ than in conventional VQ schemes, because the dimension of vectors in projection domain is, in general, much smaller than that in the spatial domain. In Projection-VQ, the image can be reconstructed without destroying edge sharpness in the process since the projection data having the edge information are preferentially transmitted. There are several good algorithms of reconstructing an image from projections. However, we use a new modified reconstruction algorithm suitable for a variable bit rate image coding system. We allocate the bits depending on the characteristics of the block images. Our simulation results show that the performances are superior to the ordinary VQ schemes in PSNR, and that the improvement in subjective image quality is substantial.