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An arbitrary-order unconditionally stable three-dimensional (3-D) locally-one- dimensional finite-difference time-method (FDTD) (LOD-FDTD) method is proposed. Theoretical proof and numerical verification of the unconditional stability are shown and numerical dispersion is derived analytically. Effects of discretization parameters on the numerical dispersion errors are studied comprehensively. It is found that the second-order LOD-FDTD has the same level of numerical dispersion error as that of the unconditionally stable alternating direction implicit finite-difference time-domain (ADI-FDTD) method and other LOD-FDTD methods but with higher computational efficiency. To reduce the dispersion errors, either a higher-order LOD-FDTD method or a denser grid can be applied, but the choice has to be carefully made in order to achieve best trade-off between the accuracy and computational efficiency. The work presented in this paper lays the foundations and guidelines for practical uses of the LOD method including the potential mixed-order LOD-FDTD methods.