This paper presents a novel JPEG2000-based algorithm for realizing a layered image coding (LIC) system. In the algorithm, the resolution and rate associated with each layer of the LIC system can be pre-specified. The algorithm encodes an image one layer at a time using the modified JPEG2000 technique. The encoding process at each layer only covers the subbands having resolution level lower than the designated resolution at that layer subject to the pre-specified incremental rate budget. The encoding results at the previous layers will be used in the current layer to accelerate the encoding process. Simulation results show that the algorithm outperforms its counterparts for constructing the rate- and resolution-constrained LIC systems.