Herein, aqueous ammonium sensing characteristics of polyvinylpyrrolidone (PVP) capped silver nanoparticles (Ag-NPs) coated optical fiber-based sensors are presented. The PVP-capped Ag-NPs were prepared using cold and modified polyol synthesis methods. Aqueous ammonium detection was carried out by the surface plasmon resonance (SPR) effect observed in the Ag-NPs coated optical fiber system. The effect of cold and modified polyol synthesis methods on optical sensing performance was studied. The optical fiber cladding was modified with PVP-capped Ag-NPs according to the standard protocol for sensing investigation. The probe sensing response was analyzed for varying concentrations of ammonium ions on red, green, and blue LEDs. The sensor characteristics, viz., sensing response, repeatability, calibration curve, and ambient light effect, were investigated for PVP capped Ag-NPs coated optical fiber-based sensor. The PVP capped Ag-NPs synthesized via the polyol synthesis method showed a detection limit of 48.9 mM, 1.33 mV/M sensitivity, and an excellent linear relationship (R² = 0.9992) between voltage and ammonium ion concentration in the range of 0.054–13.4 M concentration. On the other hand, PVP capped Ag-NPs synthesized using the cold synthesis method showed a detection limit of 159.4 mM, a sensitivity of 0.06 mV/M, and a poor linear relationship (R² = 0.4588) between voltage and ammonium ion concentration in the range of 0.054–13.4 M concentration. The results indicate that the PVP-capped Ag-NPs synthesized using the polyol synthesis method exhibit enhanced ammonium ion sensing compared to the cold synthesis method.