In order to satisfy the accuracy measurement demand of large diameter steel pipe, a gantry system for on-line measurement and stencil was designed. The coordinates of outer diameter points of the section could be measured by utilizing the vertical motion of laser sensor installed inside column of gantry. Coordinate of circle center was obtained by using least square method. The maximum and minimum of diameter were obtained by approximate diameter method, and then the roundness could be calculated. An example proved that the proposed system and data processing could be used to measure the outer diameter and roundness with high precision. Analysis of result showed that the gesture of steel was the main source of the error, which could be compensated through coordinate transformation and projection. It was verified the rationality of error analysis and the feasibility of compensation method. This system could be used for on line measurement of large diameter steel pipe.