An efficient lossless coding algorithm for encoding residual data based on H.264/AVC that uses the Hadamard transform to take advantage of data compaction is proposed. To reduce redundancies, the transformed coefficients are compacted using a compact truncation. The compacted coefficients are then compressed by an improved context-based adaptive variable length coding coder. Simulation results show that the proposed lossless residual coding algorithm reduces the bit rate by >7.5% compared with those obtained using existing H.264/AVC lossless coding systems.