The spectrally constrained diffuse optical tomography (DOT) method relies on incorporating spectral prior information directly into the image reconstruction algorithm, thereby correlating the underlying optical properties across multiple wavelengths. Although this method has been shown to provide a solution that is stable, the use of conventional Tikhonov-type regularization techniques can lead to additional crosstalk between parameters, particularly in linear, single-step dynamic imaging applications. This is due mainly to the suboptimal regularization of the spectral Jacobian matrix, which smoothes not only the image-data space, but also the spectral mapping space. In this work a novel regularization technique based on the singular value decomposition (SVD) is presented that preserves the spectral prior information while regularizing the Jacobian matrix, leading to dramatically reduced crosstalk between the recovered parameters. Using simulated data, images of changes in oxygenated and deoxygenated hemoglobin concentrations are reconstructed via the SVD-based approach and compared with images reconstructed by using non-spectral and conventional spectral methods. In a 2D, two wavelength example, it is shown that the proposed approach provides a 98% reduction in crosstalk between recovered parameters as compared with conventional spectral reconstruction algorithms, and 60% as compared with non-spectrally constrained algorithms. Using a subject specific multilayered model of the human head, a noiseless dynamic simulation of cortical activation is performed to further demonstrate such improvement in crosstalk. However, with the addition of realistic noise in the data, both non-spectral and proposed algorithms perform similarly, indicating that the use of spectrally constrained reconstruction algorithms in dynamic DOT may be limited by the contrast of the signal as well as the noise characteristics of the system.