There are many inherent performance limitations using traditional algorithms for online measurement of dielectric loss factor including synchronous sampling, no inter-harmonics and the power system frequency must be invariable. In a non-stationary signal environment where power frequency fluctuation and inter-harmonic components exist, there is no guarantee of measurement accuracy when using traditional methods. The paper proposes a high-accuracy advanced method for online monitoring of dielectric loss factor of power equipment. The theoretical basis of the advanced algorithm is based on a new data processing procedure including data truncation and data addition which compensates phase distortion as a result of the fact that the spectrum of addition data contains offsets. The algorithm can accurately extract the fundamental signal and calculate the dielectric loss factor. Measured results from simulations and practical engineering projects show that the new algorithm has good application feasibility without being affected by the limitations rendered above.