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In this paper, the authors propose a novel technique for wavelength-division demultiplexing using a graded-index planar structure. The device consists of three layers of the same bulk material: The two outer layers are homogeneous media with refractive indices n1 and n2, while the inner layer is an inhomogeneous medium where its refractive index is graded according to a certain profile. The proposed technique exploits the spatial shift that results from the material dispersion found in dispersive media such as silicon dioxide (silica). It is found that the graded-index structure produces a spatial shift that is much higher than that encountered in conventional prisms, provided a certain refractive index profile is chosen. Unlike graded-index fibers, it is found that the value of α of the refractive index profile (α-profile) for the proposed device must be < 1 to get large spatial dispersion. A mathematical expression for the spatial shift between adjacent wavelengths is found by determining the path profiles followed by the different wavelengths as they propagate through the graded-index layer. Theoretically, it is found that any spatial shift can be obtained by either reducing the value of α far below 1 for a fixed size of the structure or increasing the size of the structure for a fixed value of α.