Oil analysis is one of the main methods for monitoring the status of internal combustion engines and oils to ensure the lubricant's protective performance and engine health. This paper investigate oil condition monitoring in gasoline engine using oil dielectric coefficient measurement. At first capacitive sensor pectinate type is designed and manufactured that engine oil can pass through the sensor with high resolution and accuracy for engine monitoring application. Results show that up to 1.5% water pollution in oil, dielectric coefficient and θ is increased linearly. More water pollution increase dielectric coefficient exponentially. Due to investigate oil oxidation in controllable real condition, this sensor and another industrial quality sensor is evaluated in engine durability test. Although oil dielectric coefficient is increased with oil oxidation but also θ is constant permanently. Monitoring the result of dielectric behavior of engine oil in new design sensor is similar to industrial quality sensor. In addition interaction effect of water pollution and oil oxidation is studied. Results indicate that this sensor is capable of detecting water pollution and oxidation in engine oil.