This paper presents a scheme that digitally cancels the unwanted phase components generated by the transmitter's laser and the receiver's local oscillator laser; such components place a substantial limit on the performance of coherent transceivers monolithically integrated with lasers in a photonic integrated circuit (PIC). Our cancellation proposal adopts the orthogonal polarization approach to provide a reference that is uncorrelated with the data signal. We elaborate on the principle of our proposal and its digital signal processing (DSP) algorithm. Experiments on a VCSEL with a linewidth of approximately 300MHz verify that our proposal can overcome the inherent phase noise limitations indicated by simulations and experiments. Our cancellation algorithm in conjunction with CMA-based polarization control is demonstrated and evaluated to confirm the feasibility of our proposal. The achievement of greatly relaxed laser linewidth will offer a significant benefit in offsetting the technical and cost requirements of coherent transceiver PICs with lasers. Therefore, our cancellation proposal is an enabling technology for the successful deployment of future coherent-based passive optical network (PON) systems.