The present invention provides a system and method of optical communications that utilize coherent detection technique and optical orthogonal frequency division multiplexing for phase encoded data transmission. In particular the invention addresses a device and method for digital polarization compensation of optical signals with up to 100 Gb/s transmission rate received via an optical link. The polarization compensation operates in two modes: acquisition mode and tracking mode. The polarization recovery is performed at the receiver side using the received digital signal conversion into frequency domain and separate reconstruction of the polarization state in each spectral component.