The invention related to the system and method for optical communication using light of two polarization states. Polarization distortion loss (PDL) is compensated by implementation of polarization controllers at both the transmitter and receiver sides. The transmitter controller performs a mixing transformation of beam with two polarizations, while the receiver controller performs the same transformation in the opposite direction with exactly same sequence as in the transmitter part. A cross scrambling and a polarization rotation represented by matrix multiplication are examples of such mixing polarization transformations. The averaged PDL induced errors are corrected by the FEC code plus interleavers.