This paper presents an iterative algorithm for image and video denoising which is based on fractional block-matching and transform domain filtering. We propose fractional motion estimation technique to find the most accurate similar blocks for each block of an image which improves sparsity enabling effective image denoising. By taking the advantage of blocks similarity and wavelet transform domain filtering along with weighted average function (WAF) in an iterative based manner, we achieve a higher level of sparsity and a better exploiting of blocks similarity redundancies of noisy images that increase the chance of preserving details and edges in the restored image. Since our algorithm is iterative, we can tradeoff between image denoising degree and computational complexity. In addition, we develop a video denoising algorithm based on the proposed image denoising algorithm. The simulation results of images and videos contaminated by additive white Gaussian noise demonstrate that our algorithm substantially achieves better denoising performance compared with previously published algorithms in terms of subjective and objective measures.