Primarily due to the progress in spatial resolution of satellite imagery, the methods of segment based image analysis for generating and updating geographical information are becoming more and more important. This work presents a novel image segmentation based on color features with K-means clustering algorithm. The entire work is divided into two stages. First enhancement of field separation of satellite image using de-correlation stretching is carried out and then the regions are grouped into a set of five classes using K-means clustering algorithm. Using this two step process, it is possible to reduce the computational cost and to avoid feature calculation for every pixel in the image. Keywords: Deforestation, Image Segmentation, K-Means, Satellite Image Processing, GIS. © 2015, Sphinx Knowledge House. All rights reserved.