Power transformers are essential apparatuses used to transfer electrical energy from one voltage-level circuit to another. For reliable systems, preventive maintenance of the transformers is required to ensure good services of all mechanical, electrical, and insulation parts. Oil-immersed paper is most often used for transformer insulation. To ensure such good insulation performance and for assessing insulation conditions, advanced transformer sensing, monitoring, and effective assessment techniques are required. This paper introduces an effective technique for assessing the insulation conditions in power transformers, which are crucial for ensuring reliable energy transfer. The method utilizes advanced transformer sensing and monitoring, focusing on oil-immersed paper insulation commonly used in transformers. The technique employs dielectric response sensing, obtained from frequency-domain spectroscopy tests, to estimate degrees of polymerization (DP) and percentages of moisture content (PMCs) in the oil-immersed paper insulation. These parameters are well-known indicators of insulation performance. The approach is based on the weighted k-nearest neighbor regression, using a database of dielectric loss factors at low frequency and oil conductivities. To overcome limited data availability, linear interpolation and extrapolation techniques are applied to enlarge the database. Experimental verification and comparison with a previously developed method demonstrate the proposed technique’s superiority in accuracy and complexity. The maximum deviations of DP and PMC in the validation cases are 6.2% and 18.7%, respectively. In addition, to evaluate the validity of our proposed method in the case of a real power transformer, a comparative analysis of the DP and PMC values determined by the proposed method with those obtained through a previously developed and complicated approach was performed. The predicted results indicate that the DP and PMC values of the oil-immersed insulation fall within the ranges of 800 to 1000 and 1.5 to 2.0, respectively, which agree with the results determined by the complicated approach and closely align with real conditions. By offering a reliable and advanced means of assessing insulation conditions, this technique contributes to the preventive maintenance and overall efficiency of power transformers.