The relation of optical properties including propagation loss of rf magnetron sputtered ZnO thin films on corning glass substrates with structural properties of the films has been studied. The film was deposited in sputtering gas oxygen : argon ratio of 80 : 20 without substrate heating, and annealed at 380 degree Celsius in air for different times. The structural properties of the films were studied by X-ray diffraction and atomic force microscopy and the waveguiding properties were studied by prism-coupling using a He-Ne laser. A significant improvement of crystalline orientation of the film on annealing was observed. The initial decrease in the estimated value of the extraordinary refractive index of the film with annealing was attributed to the observed lattice contraction. On further annealing, the indices were found to increase slightly. The values of packing density of the films for different annealing times were estimated from the refractive indices, taking into consideration the effect of variation of lattice constant. The packing density was found to initially increase with annealing, and thereafter became constant on further annealing. The propagation loss was found to decrease by more than an order, to a value of 3 dB/cm on annealing for one hour, and this was attributed to the observed decrease in stress, increase in packing density and improved crystalline orientation of the film.