A single-mode external-cavity tuneable laser includes a gain medium, a tuneable element and a channel allocation grid element. The channel allocation grid element is preferably an FP etalon which is structured and configured to define a plurality of equally spaced transmission peaks corresponding to the ITU channel grid, e.g., 200, 100, 50 or 25 GHz. The tuneable element, preferably a tuneable mirror, serves as the coarse tuning element that discriminates between the peaks of the grid etalon. The tuneable laser of the invention has a relatively short cavity length of not more than 15 mm, preferably not larger than 12 mm. It has been found that the FP etalon introduces a phase non-linearity in the external cavity, which induces a compression of the cavity modes, i.e., a reduction in the cavity mode spacing, in correspondence to the etalon transmission peaks. Mode compression increases with the decrease of the FWHM bandwidth of the grid FP etalon, hereafter referred to as (FWHM).sub.FP. (FWHM).sub.FP should be about 2 GHz to about 8 GHz. Preferably, (FWHM).sub.FP is approximately 3 to 6 GHz.