An dynamic optical filter 10 is provided to selectively attenuate or filter a wavelength band(s) of light (i.e., optical channel(s)) or a group(s) of wavelength bands of an optical WDM input signal 12. The optical filter is controllable or programmable to selectively provide a desired filter function. The optical filter 10 includes a spatial light modulator 36, which comprises an array of micromirrors 52 that effectively forms a two-dimensional diffraction grating mounted in a retro-reflecting configuration. Each optical channel 14 is dispersed separately or overlappingly onto the array of micro-mirrors 52 along a spectral axis or direction 55 such that each optical channel or group of optical channels are spread over a plurality of micromirrors to effectively pixelate each of the optical channels or input signal. Each channel 14 or group of channels may be selectively attenuated by flipping or tilting a selected number of micromirrors to thereby deflect a portion of the incident radiation away from the return optical path. The micro-mirrors operate in a digital manner by flipping between a first and second position in response to a control signal 56 provided by a controller 58 in accordance with an attenuation algorithm and an input command 60. The switching algorithm may provide a bit (or pixel) map or look-up table indicative of the state of each of the micro-mirrors 52 of the array to selectively attenuate the input signal and provide a modified output signal 38 at optical fiber 40.