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We demonstrate a novel Rayleigh interferometric noise mitigation scheme for applications in carrier-distributed dense wavelength division multiplexed (DWDM) passive optical networks at 10 Gbit/s using carrier suppressed subcarrier-amplitude modulated phase shift keying modulation. The required optical signal to Rayleigh noise ratio is reduced by 12 dB, while achieving excellent tolerance to dispersion, subcarrier frequency and drive amplitude variations.