An apparatus and method for converting an input data character stream into a variable length encoded data stream in a data compression system. A sliding window data compression algorithm is combined with Huffman encoding on the strings and raw bytes. The Huffman table, in a compressed form, is prepended to the encoded output data. The Huffman codes representing the shortest strings encode both the string length and part of the string offset. Assigning Huffman codes to represent the combined length and offset allows the use of a smaller sliding window size without sacrificing compression ratio. The smaller window size allows implementations in software and hardware to minimize memory usage, thus reducing cost.