This paper presents a new polarization sensitive array composed of a two-level nested subarray and an optimally nested subarray with orthogonal oriented antennas, and then proposes a correlation matrix reconstruction based estimation method for direction of arrival (DOA) and polarization state. The optimally nested array with N antennas can provide maximum degrees of freedom (DOF) of difference co-array (i.e., (N - 1)N + 1), which increases the aperture of the proposed array. However, both the difference co-arrays of the optimally nested subarray and between subarrays are nonuniform linear arrays (i.e., holes appear), and hence most existing methods fall to use all information received from the proposed array, resulting in estimation performance loss. Depending on the oblique projection (OP) operator constructed by initial DOAs from the two-level nested subarray, the proposed method first fills the holes to generate the virtual correlation matrix with increased DOF. Then the DOA and polarization state are estimated efficiently. The resulting DOAs can be regarded as the new initial angles for OP operator construction, to iterate aforesaid steps for estimation performance enhancement. The Cramer-Rao bound (CRB) and the computational complexity of the proposed method are provided. Simulation results are given to validate the effectiveness of the proposed array and the proposed method.