Height datum is an important part of national geodetic network. Establishment of a unified national land and sea elevation benchmarks and implementation of height datum connection between the Chinese mainland and offshore islands are issues that need to be resolved in geomatics and marine sciences. Derived from basic definition of elevation datum and relationship between geo-potential and normal height, the scientific theory and algorithm for transferring height datum from mainland to islands with geo-potential are elaborated. The accuracy of geo-potential difference is discussed using a numerical analysis method. We also give criteria to choose virtual leveling routines and algorithm to give optimized results. One experiment in the China seas, among 26 tidal gauge stations in the sea coast of the mainland with known normal height, has confirmed the reliability and accuracy of the method developed in this paper. Further optimizations for improving accuracy of island elevation are also introduced. Distribution of quasi-geoid near Xisha Islands is also given with this method.