In this paper, we propose a compact optical gas sensor based on the widespread silicon-on-insulator (SOI) technology, operating in the near-infrared (NIR) region around the 1.55 µm wavelength. The sensor employs a loop-terminated Mach–Zehnder interferometer (LT-MZI) with a slot waveguide and a strip waveguide for the sensing arm and the reference arm, respectively. For the same arm length, the LT-MZI can achieve a detection limit two times lower than that of the conventional MZI. Different sensor components were designed, and the optimum dimensions were obtained using finite-difference eigenmode (FDE) and finite-difference time-domain (FDTD) solvers. With a sensing arm length of only 150 μm, our sensor achieves a device sensitivity of 1070 nm/RIU and a figure-of-merit (FOM) as high as 280.8 RIU−1 at the 1.55 μm wavelength. Higher values of FOM can be attained by employing a longer sensing arm. The whole sensor is subjected to air cladding; thus, there is no need for oxide deposition and a further lithography step for sensing-area patterning. The sensor is well suited for low-cost fabrication and large-scale production. Finally, the same LT-MZI device with strip and slot arms but with oxide cladding was fabricated and characterized. The measurements were in good agreement with the electromagnetic (EM) simulation results, ensuring the reliability of our proposed design.