This paper proposes a novel implementation of a differential protection scheme using magneto-optic current sensors. The proposed all-Optical Differential Protection (ODP) scheme utilizes inherent properties of magneto-optic sensors connected in series to perform differential protection functionality. In order to demonstrate the validity of the proposed scheme, all constituent components such as optical fibre, polarisers and Faraday rotators have been modelled using the Jones matrix representation. Through selected simulation-based case studies, including external and internal (high resistive and solid) faults, the paper demonstrates that the proposed novel ODP scheme for busbar protection meets the protection relaying performance criteria in terms of discrimination, sensitivity, stability, as well as ultra-high speed of operation