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How to reduce Compression Ratio

I have bought a new Xperia Neo and after using the camera I found that the compression is too high and it produces only slightly more than 1MB of pictures. Could anyone please let me know how I can reduce compression ratio in Xperia Neo?

If it is not possible in the already provided phone app, could someone let me know which is the best app from Market that will take photos with least compression?
 
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