In a multi-resolution image encoding system, the image is encoded into a single file as a layer of bit streams, and then it is transmitted layer by layer progressively to reduce the transmission time across a low bandwidth connection. This encoding scheme is also suitable for multiple decoders, each with different capabilities ranging from a handheld device to a PC. In our previous work, we proposed an edge adaptive hierarchical interpolation algorithm for multi-resolution image coding system. In this paper, we enhanced its compression efficiency by adding three major components. First, its prediction accuracy is improved using context adaptive error modeling as a feedback. Second, the conditional probability of prediction errors is sharpened by removing the sign redundancy among local prediction errors by applying sign flipping. Third, the conditional probability is sharpened further by reducing the number of distinct error symbols using error remapping function. Experimental results on benchmark data sets reveal that the enhanced algorithm achieves a better compression bit rate than our previous algorithm and other algorithms. It is shown that compression bit rate is much better for images that are rich in directional edges and textures. The enhanced algorithm also shows better rate-distortion performance and visual quality at the intermediate stages of progressive image transmission.