Both of the theoretical analysis and experiments show that when the diameter of the waveguide and the light wavelength are fixed, the optical power loss increases linearly with the increase of the Hg cladding optical waveguide (HCOW) length. The theory and signal processing of the optical liquid level sensor with HCOW as its probe are analyzed, it works based on the theory of connected vessel, which converts the change of liquid level to the change of the length of the HCOW. By optimized design, the real time detection of the liquid level with high precision can be got. The experimental results show that the measurement accuracy is 5.2 mm within 10 m liquid level, its theory precision can up to 0.02%. The research of this liquid level senor may offer significant metrological improvement by reason of its safety in corrosive or explosive environments, especially in the liquid level detection of oil depot.