Common-mode (CM) leakage current is an essential insulation indicator for condition monitoring in distribution grids. However, online measurement of CM leakage current is a difficult task in the industry due to the disturbances of far larger load currents. To address this challenge, a novel CM leakage current measurement method based on multi-layer magnetic shield has been proposed in this paper. The analytical solution for the magnetic field around the shield is firstly derived and validated by finite element analysis. Comprehensive comparison with previous single-layer shield design is then conducted for a typical industrial case, proving that an improvement of about 46 dB can be achieved for CM leakage current measurement by the novel design. A sensor prototype has also been developed with optimized parameters and validated by experiments. The effectiveness of the proposed method is proved, with minor CM leakage current accurately extracted from load currents which are 3000 times larger.