A new concept of a terrace retro-reflector array (TERRA) as part of the poloidal polarimeter for ITER is proposed in this paper. TERRA reflects a laser light even from a high incident angle in the direction of the incident-light path, while a conventional retro-reflector array cannot. Besides, TERRA can be installed in a smaller space than a corner-cube retro-reflector. In an optical sense, TERRA is equivalent to a Littrow grating, the blaze angle of which varies, depending on the incident angle. The reflected light generates a bright and dark fringe, and the bright fringe is required to travel along the incident-light path to achieve the objects of laser-aided diagnostics. In order to investigate the propagation properties of laser light reflected by TERRA, we have developed a new diffraction formula. Conditions for the propagation of the bright fringe in the direction of the incident light have been obtained using the Littrow grating model and have been confirmed in a simulation applying the new diffraction formula. Finally, we have designed laser transmission optics using TERRA for the ITER poloidal polarimeter and have calculated the light propagation of the system. The optical design obtains a high transmission efficiency, with 88.6% of the incident power returned. These results demonstrate the feasibility of applying TERRA to the ITER poloidal polarimeter.