An improved demodulation method for the phase-generated carrier (PGC) system by eliminating laser-intensity modulation (LIM) is proposed. The influence of LIM is analyzed theoretically and experimentally. Two parameters are used to describe the effect of LIM: the LIM coefficient (LIMC) and the LIM phase delay (LIMPD). Good stability of the LIMC and LIMPD is confirmed by experimentation with an actual system. The demodulation signal using the traditional method has a much greater higher harmonic component than the improved method due to LIM. The increase of the signal-to-total-harmonic ratio (SHR) using the improved method is , and there is a corresponding improvement of to the signal to noise and distortion (SINAD) and signal-to-noise ratio (SNR). A new prototype system using the improved PGC method for marine seismic sensing capable of demodulating multiple channels in parallel, simultaneously, is demonstrated. The SHR is stable at when the LIMC is . Similar results are obtained for the SINAD and SNR. The demodulated signal’s upper limit is at and at , giving a dynamic range reaching at . The system’s SINAD is stable within , whereas the SHR is stable within in field application.