In this paper we propose a novel, improved, phase generated carrier (PGC) demodulation algorithm based on the PGC-differential-cross-multiplying approach (PGC-DCM). The influence of phase modulation amplitude variation and light intensity disturbance (LID) on traditional PGC demodulation algorithms is analyzed theoretically and experimentally. An experimental system for remote no-contact microvibration measurement is set up to confirm the stability of the improved PGC algorithm with LID. In the experiment, when the LID with a frequency of 50 Hz and the depth of 0.3 is applied, the signal-to-noise and distortion ratio (SINAD) of the improved PGC algorithm is 19 dB, higher than the SINAD of the PGC-DCM algorithm, which is 8.7 dB.