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The first experimental demonstration of a forward error correction (FEC) for 10-Gb/s optical communication systems based on a block turbo code (BTC) is reported. Key algorithms, e.g., extrinsic information, log-likelihood ratio, and soft decision reliability, are optimized to improve the correction capability. The optimum thresholds for a 3-bit soft decider are investigated analytically. A theoretical prediction is verified by experiment using a novel 3-bit soft decision large scale integrated circuit (LSI) and a BTC encoder/decoder evaluation circuit incorporating a 10-Gb/s return-to-zero on-off keying optical transceiver. A net coding gain of 10.1 dB was achieved with only 24.6% redundancy for an input bit error rate of 1.98×10-2. This is only 0.9 dB away from the Shannon limit for a code rate of 0.8 for a binary symmetric channel. Superior tolerance to error bursts given by the adoption of 64-depth interleaving is demonstrated. The ability of the proposed FEC system to achieve a receiver sensitivity of seven photons per information bit when combined with return-to-zero differential phase-shift keying modulation is demonstrated.