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A truly nonintrusive optical sensing method suitable for accurate and precise measurement of liquid level is proposed and demonstrated in this paper. Sensing principle of the proposed method is based on the phenomenon of lateral displacement effect, which is observed when oblique light rays propagate through material media with different thicknesses and refractive indices. Experimental results of this method demonstrate its ability to measure liquid level very precisely up to a resolution of about 40-50 μm. The proposed method has the potential for use in in situ measurement of liquid level and volume. It can also be exploited for measurement of refractive index of liquid.