This paper proposes a matching pursuit video codec built on top of the H.264 framework. H.264/MPEG4 AVC is currently the most efficient video coding standard and it applies block-based motion compensation and DCT-like transform as all other standards. In order to further improve the coding efficiency and enable bit stream scalability, we explore the use of redundant frame-based Gabor transforms for coding the prediction error. The motion compensation and mode decision parts are compatible to H.264. The overlapped block motion compensation (OBMC) method can be optionally invoked to smooth the predicted images. Because H.264/AVC incorporates both inter and intra prediction, and allows many different block sizes, it is more challenging to apply matching pursuit on H.264/AVC than on prior standards. We investigate how to apply MP to prediction error images containing both inter- and intrapredicted blocks. We also investigate how to adapt the quantizer based on the H.264 QP. The preliminary simulation results show that the proposed codec outperforms H.264/AVC at the low to medium bit rate range, both objectively and subjectively, while generating a scalable bit stream.