A modified phase generated carrier (PGC) demodulation algorithm for interferometric sensor is presented in this letter. Compared with the differential-cross-multiplying measure (PGC-DCM algorithm), the effect of light intensity disturbance (LID) is eliminated. Additionally, the harmonic distortion of arctangent measure (PGC-arctan algorithm) is well suppressed. In the experiment, while the simulated LID frequency is settled to 50 Hz, the signal-to-noise of the improved PGC algorithm respectively receives an increase of 10.3 dB and 18.2 dB over PGC-DCM and PGC-Arctan algorithms. The system has a dynamic range of 45.9 dB at 600 Hz by employing the improved PGC demodulation algorithm.