The fiber Sagnac loop filter for wavelength demodulation of fiber Bragg grating (FBG) sensor is greatly influenced by environmental temperature. A new stable demodulation method is proposed to eliminate the influence of temperature. The principle of wavelength demodulation is introduced, and the optical configurations are presented. Using a polarization maintaining fiber Sagnac loop as the edge filter and a distributed feedback (DFB) single wavelength laser as a reference light, FBG signal and reference lights are demodulated. Optical intensities of the transmission and reflection outputs from Sagnac loop filter are detected simultaneously, which are normalized and analyzed by the differential detection method. Theoretical analysis and experimental results show that using this technology, the temperature influence on the Sagnac loop filter is sufficiently eliminated, and the stability of the demodulator is improved. When the Bragg wavelengths range from 1302 nm to 1318 nm, the wavelength shift of the demodulator due to temperature is small as 2.4×10-4 nm/℃, which is as 1.8×10-4 times as that of an uncompensated Sagnac loop filter without the DFB reference light.