In this paper the problem of image restoration (denoising and inpainting) is approached using sparse approximation of local image blocks. The local image blocks are extracted by sliding square windows over the image. An adaptive block size selection procedure for local sparse approximation is proposed, which affects the global recovery of underlying image. Ideally the adaptive local block selection yields the minimum mean square error (MMSE) in recovered image. This framework gives us a clustered image based on the selected block size, then each cluster is restored separately using sparse approximation. The results obtained using the proposed framework are very much comparable with the recently proposed image restoration techniques.