In this research, a new low refractive index ferrofluid is proposed by coating magnetic nanoparticles with a layer of silver, applying the method of modified chemical co-precipitation. This preparation method is green and environmentally friendly without toxic gases being released. Coated nanoparticles are characterized by X-ray diffraction (XRD), transmission electron microscopy (TEM), energy dispersive X-ray spectrometry (EDS), X-ray photoelectron spectroscopy (XPS), and vibration sample magnetometery (VSM). These characterizations show that the silver nanoparticles grow on the surface of magnetic nanoparticles in this new ferrofluid. The hysteresis loop of this new ferrofluid demonstrates that it maintains superparamagnetic properties. A new method of refractive index measurement is applied in this research by employing a long-period grating (LPG) optical fiber sensor. The change value in the refractive index per unit concentration reduces by 16.46% compared to the conventional ferrofluid.