At that sort of range you could possibly use triangulation which is simpler. A fixed laser and linear sensor, either analogue or digital for sensing. Otherwise, I would suggest phase shift method - it is better at short range than pulsed. There is complete project on AVRfreaks for a laser rangefinder like one of the Bosch ones. Given your short range you could get away with fewer frequencies (and lower frequencies). In fact, a single frequency of maybe 10MHz would do. Be careful of eye safety.
There is no reason why it needs to be "large" - it depends on what you need. The biggest parts are often the optics. With 25mm diameter optics it is going to be 50mm wide unless you are going to use one set of optics for both transmit & receive.
Keith.