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This paper introduces an extension of entropy-constrained residual vector quantization (VQ) where intervector dependencies are exploited. The method, which we call conditional entropy-constrained residual VQ, employs a high-order entropy conditioning strategy that captures local information in the neighboring vectors. When applied to coding images, the proposed method is shown to achieve better rate-distortion performance than that of entropy-constrained residual vector quantization with less computational complexity and lower memory requirements. Moreover, it can be designed to support progressive transmission in a natural way. It is also shown to outperform some of the best predictive and finite-state VQ techniques reported in the literature. This is due partly to the joint optimization between the residual vector quantizer and a high-order conditional entropy coder as well as the efficiency of the multistage residual VQ structure and the dynamic nature of the prediction.