The continuing developments in semiconductor device technologies have prompted the need for advanced nanoscale processing techniques. Laser chemical processing offers significant advantages, including spatial selectivity, high localization, minimal material damage, and fast operation. Pulsed laser-induced dissociation of gas species serves as an essential process step, contributing to doping, etching, and other chemical modifications of semiconductor materials. However, the mechanisms behind the laser-gas interactions and subsequent surface modifications remain elusive. Here, we demonstrate ultraviolet picosecond laser-induced atomic layer etching of silicon in a gaseous chlorine environment, achieving self-limited etching with a precision of 0.93 nm/cycle. Through in situ optical emission spectroscopy, we elucidate the transition energy states of laser-excited products during chlorination. Complementing our experimental findings, we perform numerical modeling that reveals the complex spatiotemporal dynamics of chlorine species, encompassing their generation, recombination, diffusion, and transient surface reaction with the silicon substrate. Our study demonstrates optical diagnostics of laser-induced chlorination in atomic layer etching, which can provide valuable insights into ultrafine chemical nanostructuring of semiconductor materials.