We propose a level-successive encoding scheme for the compression of continuous tone images. The compressed bit stream is partitioned into individual segments corresponding to successive bits and arranged in order of decreasing significance of the bits. Bit-plane scalability is achieved by recursively partitioning the image into an LSB bit-plane and remaining higher order bits and encoding the LSB bit-plane using the remaining bits as context. This allows the scheme to achieve excellent compression performance by exploiting both spatial and inter-level correlations. We compare the proposed scheme with a number of scalable and non-scalable lossless image compression algorithms to benchmark its performance. Results indicate that the level-embedded compression incurs only a small penalty in compression efficiency over conventional lossless schemes while offering the benefit of easy bit-plane scalability.