From MATLABs documentation on dwt2:

"Let sx = size(X) and lf = the length of filters; then size(cA) = size(cH) = size(cV) = size(cD) = sa where sa = ceil(sx/2), if the DWT extension mode is set to periodization. For the other extension modes, sa = floor((sx+lf-1)/2)."

So you will only get subband images of half size if you set the extension mode to perdiodic:

>> [cA1,cH1,cV1,cD1] = dwt2(X,'db4','mode','per');

will yield 512x512 subband images if X is 1024x1024.

You can also use dwtmode(..) to set the mode statically, but watch out it's documentation, its 'per' for periodic, not 'ppd' as written in my R2011b documentation..

Why exactly this behaviour is the case, I can't tell..

Thank you Alexander. I just left this only option untried in the Matlab help documentation. and it worked. :)

Check the pdf file in the following link. Ppages 75 - 78 for more details.

http://edoc.hu-berlin.de/docviews/abstract.php?lang=ger&id=29417