We developed a highly sensitive and stable optical fiber AE monitoring system equipped with two functions which compensated the phase and polarization differences between object and reference beams. The phase control was achieved by changing the length of the reference fiber with PZT actuaior glued on the reference fiber to compensate low frequency vibration. Additionally, we simultaneously controlled the polarization of the object beam to coincide polarization of object beam with that of reference beam by a polarization controller. We applied the developed system to monitor AE while welding two steel plates. As the result, we succeed in detecting AE during welding and cooling process.