We report a numerical analysis of the liquid crystal polarization grating (LCPG) as an electro-optically controlled, polarization independent light modulator. The 2D finite-difference time-domain (FDTD) modeling for periodic anisotropic structures has been developed as a numerical tool to study optical properties of anisotropic gratings. Both normal and oblique incidence cases are successfully implemented for wide-band analysis. Nematic director profiles of the LCPG are obtained from elastic free-energy calculations using a commercial software tool, called LC3D. A study of the essential diffraction characteristics of the LCPG is presented, which manifests pixel-level light modulation with a nearly 100% efficiency on unpolarized light. The effect of an off-axis input and the grating regime on the LCPG diffraction is investigated. Finally, we present a study of the electro-optical response of the LCPG when an electric field applied for both static and dynamic cases. The FDTD results show that a highly efficient, polarization-independent light modulation with capability of an electrical switching/tuning is possible by the LCPG.© (2006) COPYRIGHT SPIE--The International Society for Optical Engineering. Downloading of the abstract is permitted for personal use only.