Interferometric laser ranging is an enabling technology for high-precision satellite-to-satellite tracking within the context of earth observation, gravitational wave detection, or formation flying. In orbit, the measurement system is affected by environmental influences, particularly satellite attitude jitter and temperature fluctuations, demanding an instrument design, which has a high level of thermal stability and is insensitive to rotations around the satellite's center of mass. Different design approaches for a heterodyne dynamic laser ranging instrument have been combined to a new improved design concept that involves the inherent beam tracking capabilities of a retroreflector into a mono-axial configuration with nanometer accuracy. In order to facilitate the accommodation onboard a future satellite mission, the design allows for a continuously adjustable flexible phase center position. To cover large inter-spacecraft distances, the instrument design comprises an active transponder system, featuring a two-dimensional beam steering mechanism to align a local, strong laser to the (weak) input beam without affecting the measurement path. To this end, a dynamic laser ranging instrument is presented, which has compact dimensions and is fully integrated on a single Zerodur baseplate. The instrument performance will be evaluated in a dedicated test setup providing a flat-top beam simulating the laser beam received from a distant spacecraft, including a beam steering subsystem, which allows for monitoring of pathlength variations when the angle of incidence at the optical instrument is changing.