Lattice-mismatched epitaxial films of La0.7Sr0.3MnO3 (LSMO) on LaAlO3 (001) substrates develop a crossed pattern of misfit dislocations above a critical thickness of 2.5 nm. Upon film thickness increases, the dislocation density progressively increases, and the dislocation spacing distribution becomes narrower. At a film thickness of 7.0 nm, the misfit dislocation density is close to the saturation for full relaxation. The misfit dislocation arrangement produces a 2D lateral periodic structure modulation (Λ ≈ 16 nm) alternating two differentiated phases: one phase fully coherent with the substrate and a fully relaxed phase. This modulation is confined to the interface region between film and substrate. This phase separation is clearly identified by X-ray diffraction and further proven in the macroscopic resistivity measurements as a combination of two transition temperatures (with low and high Tc). Films thicker than 7.0 nm show progressive relaxation, and their macroscopic resistivity becomes similar than that of the bulk material. Therefore, this study identifies the growth conditions and thickness ranges that facilitate the formation of laterally modulated nanocomposites with functional properties notably different from those of fully coherent or fully relaxed material.