An optically addressed parallel-aligned nematic-liquid-crystal spatial light modulator (PAL-SLM) has been studied as a dynamic phase-only light modulation device. The phase modulation characteristics of the PAL-SLM using a liquid crystal display (LCD) as an addressing mask were investigated by analyzing diffraction efficiencies resulting from binary gratings projected from the LCD. A more than 2 pi phase-only modulation depth was achieved. The highest first-order diffraction efficiency of approximately 38% was also obtained; this is close to the theoretical limit. The experimental results of diffraction efficiencies depending on the phase modulation depth are in good agreement with the simulation for the system operation.