It is discovered that the jump point of the constant fraction discrimination(CFD) method moves forward when the laser receiver is saturated. In order to guarantee the range precision of laser fuze in short range, an error compensation algorithm based on the echo power equation was proposed for results correction. Firstly, based on a linear model to describe the pulse signal, the analytic expression of the saturation drift error was derived, and the relationship between drift error and echo signal slope was analyzed. Then, according to echo power equation, the compensation model of saturation drift error was established, in the case of the laser incidence on a specific target with a small angle. The error compensation expression was calibrated by experiment. Finally, a modified ranging formula was obtained. And the error compensation effect was tested by experiment. The results show that when the signal is saturated, the ranging deviates from the actual distance, and the deviation can be up to 1.4 m; due to the use of error compensation method, ranging deviation can be maintained between ±0.5 m. Thus, this work can provide a theoretical reference for the design of miniaturized high precision laser proximity fuze.