In this paper, a hollow-core fiber based micro-cavity Mach-Zehnder interferometer is realized and demonstrated by arc-discharged large lateral-offset splicing. The transmission spectra are investigated and compared with respects to loss and extinction ratio, also the cavity length and offset are theoretically and experimentally optimized. The obtained results show that the concentration of salinity can affect the wavelength response, the average salinity and temperature sensitivities are −2.275 nm/‰ and 1.71 nm/°C, respectively. Moreover, more than 5-fold improvement of the real detection limit is gained by a narrow line-width tunable laser based intensity-demodulation system. And the detection limit of 0.031 ‰ is experimentally witnessed with a time-response of ∼280 ms.