An efficient block based two-layer JPEG encoding algorithm is proposed to compress high dynamic range (HDR) images in this work. The proposed algorithm separates an input HDR image into a tone-mapped low dynamic range (LDR) image and a ratio image, which represents the quotients of the original HDR pixels divided by the tone-mapped LDR pixels. Then, the tone-mapped LDR image is compressed using the standard JPEG scheme to preserve backward compatibility and the ratio image is encoded to minimize a cost function that models the perception of each block with different quantization parameters in the human visual system (HVS). Simulation results show that the proposed algorithm provides better performance than the conventional method, which encodes the ratio image without any prior information of blocks.