A system and method for effectively performing wavelet transforms on incomplete image data includes an image processor that performs a green-pixel transformation procedure on incomplete color pixel matrices. The image processor then rearranges red, blue and transformed green-pixel into four quadrants of contiguous pixels and applies some two dimensional (2D) wavelet thresholding schemes on each quadrant. After thresholding, an inverse procedure is applied to reconstruct the pixel values on the incomplete color pixel matrices. For further de-correlation of image data, the image processor may stack similar image patches in a three dimensional (3D) array and apply incomplete-data wavelet thresholding on the 3D array. The incomplete-data wavelet thresholding procedure may be put in an improved local similarity measurement framework to achieve better performance of image processing tasks. A CPU device typically controls the image processor to effectively perform the image processing procedure.