The invention relates to a planar lightwave circuit including a two stage optical filter for use in a bi-directional transceiver. A first stage includes a non-dispersive optical filter, which enables light within in a certain wavelength range, e.g. a signal channel from a laser source, to be launched onto an input/output waveguide, while light within another wavelength range, e.g. one or more detector channels, will be directed from the input/output waveguide to a second stage. The second stage includes a reflective diffraction grating with a higher resolution than the first stage providing passbands 2 to 5 times thinner than the first stage.