  As communication channels are increasing in number, reliability of faithful
communication is reducing. Hacking and tempering of data are two major issues
for which security should be provided by channel. This raises the importance of
steganography. In this paper, a novel method to encode the message information
inside a carrier image has been described. It uses Karhunen-Lo\`eve Transform
for compression of data and Least Bit Substitution for data encryption.
Compression removes redundancy and thus also provides encoding to a level. It
is taken further by means of Least Bit Substitution. The algorithm used for
this purpose uses pixel matrix which serves as a best tool to work on. Three
different sets of images were used with three different numbers of bits to be
substituted by message information. The experimental results show that
algorithm is time efficient and provides high data capacity. Further, it can
decrypt the original data effectively. Parameters such as carrier error and
message error were calculated for each set and were compared for performance
analysis.
