We demonstrate a novel Er3+-doped fibre laser operating in orthogonally polarized dual-frequency modes and its application to electric current sensing with frequency read-out. A Faraday rotating mirror and spatial hole burning effects in a gain medium and in a saturable absorber are utilized to control the lasing mode and polarization. The polarization mode beat frequency changes linearly in response to the non-reciprocal circular birefringence induced by an external magnetic field. When the laser was applied to sensing an alternating electric current with a simple phase-locked loop signal processing scheme, the slope coefficient of 8.0 kHz A−1 p−p per turn and the noise equivalent current of 460 Arms Hz−1=2 per turn were obtained. The new current sensor is immune to perturbations in the lead fibres. ; This research was supported by the Agency for Defence Development of South Korea.