The article introduces an advanced approach to fiber grating wavelength demodulation based on the principle of polarized-light interference. The polarized-light interferometer is also a kind of unbalanced interferometer which can convert the Bragg wavelength shifts into interferometer phase shifts. Different from the conventional unbalance interferometer, this polarization interferometer is based on the unequal refractive index ne and no rather than the unbalanced paths. In addition, the polarized-light interference is generated in the yttrium vanadate (YVO4) crystal with superior birefringence characteristic rather than in the optical fiber by which the interferometer bias is unavoidable. This article points out that through analyzing the properties of YVO4 crystal, ±0.4℃ temperature accuracy can be reached in temperature measurement by this method.