Performance of spatial multiplexing multiple-input multiple-output (MIMO) wireless systems can be improved with channel state information (CSI) at both ends of the link. This paper proposes a new linear diagonal MIMO transceiver, referred to as co-ordinate interleaved spatial multiplexing (CISM). With CSI at transmitter and receiver, CISM diagonalizes the MIMO channel and interleaves the co-ordinates of the input symbols (from rotated QAM constellations) transmitted over different eigenmodes. The analytical and simulation results show that with co-ordinate interleaving across two eigenmodes, the diversity gain of the data stream transmitted over the weaker eigenmode becomes equal to that of the data transmitted on the stronger eigenmode, resulting in a significant improvement in the overall diversity. The diversity-multiplexing tradeoff (DMT) is analyzed for CISM and is shown that it achieves higher diversity gain at all positive multiplexing gains compared to existing diagonal transceivers. Over rank n MIMO channels, with input symbols from rotated n-dimensional constellations, the DMT of CISM is a straight line connecting the endpoints (0,NtNr) and (min{Nt,Nr}, 0), where Nt, and Nr} are the number of transmit and receive antennas, respectively. © 2006 IEEE.