We demonstrate a seamless spectral defragmentation in an elastic all-optical add-drop node based on wavelength division multiplexing (WDM) channels of Nyquist optical time division multiplexing (OTDM) signal. A 172 Gbaud Nyquist OTDM signal occupying a 215 GHz range is elastically shifted adjacent to its neighboring channel, completely filling a variable spectral gap caused by the dropped channel. The frequency shift is done in a dual-stage polarization-diversity four wave mixing-based converter using polarization-maintaining highly nonlinear fiber. The spectrally defragmented signals are successfully transmitted over a 80 km fiber link with BER<10(-9).