Abstract: A compact 12-channel parallel optical transceiver with data rate up to 6.25 Gb/s per channel for very short reach (VSR) interconnection based on system-inpackage (SiP) techno-logy was implemented and tested. An 850nm vertical cavity surface emitting laser (VCSEL) array with a laser driver die was used as the light source of the transmitter, and a photodiode (PD) array with a trans-impedance amplifier/limiting amplifier (TIA/LA) die was adopted as the detector of the receiver. Passive alignment was used to reduce cost. The electrical design for high frequency and high density package is critical, due to the issues related to power inte-grity (PI) and signal integrity (SI). To meet the needs for small size package, passive embedded substrate was used to suppress the simultaneous switching noise (SSN) and improve PI. To improve the impedance discontinuity, based on electromagnetic and transmission line theories, SI design was made to reduce the crosstalk and maximize the channel bandwidth. The back-to-back eye diagram measurement results showed that the bit rate of each channel reached 6.25 Gbps.