We present a finite-difference time-domain (FD-TD) method with the perfectly matched layers (PMLs) absorbing boundary condition (ABC) based on the multidimensional wave digital filters (MD-WDFs) for discrete-time modelling of Maxwell's equations and show its effectiveness. First we propose modified forms of the Maxwell's equations in the PMLs and its MD-WDFs' representation by using the current-controlled voltage sources. In order to estimate the lower bound of numerical errors which come from the discretization of the Maxwell's equations, we examine the numerical dispersion relation and show the advantage of the FD-TD method based on the MD-WDFs over the Yee algorithm. Simultaneously, we estimate numerical errors in practical problems as a function of grid cell size and show that the MD-WDFs can obtain highly accurate numerical solutions in comparison with the Yee algorithm. Then we analyze several typical dielectric optical waveguide problems such as the tapered waveguide and the grating filter, and confirm that the FD-TD method based on the MD-WDFs can also treat radiation and reflection phenomena, which commonly done using the Yee algorithm.