An insulation board is an important insulator used between damping capacitors in a converter valve. The potential creeping discharge phenomenon on the insulation board will affect the insulation between the damping capacitors and even the safe operation of the converter valve; therefore, a modified chaos particle swarm optimization multiple signal classification (MCSPO‐MUSIC) localization algorithm based on a sparse array was proposed. The performance of the localization algorithm and the sparse array was analyzed by MATLAB simulation, and a test platform was established to detect the insulation board discharge position localization. The simulation results showed that the calculation time of this algorithm is about 1.5 s, which is an order of magnitude less than traditional MUSIC algorithm, and it is found that when the sparsity of the 4 × 4 array is 4 (the sparse array elements are 5, 9, 14 and 15), the localization accuracy remains high. Ten groups of experimental data were put into the MCSPO‐MUSIC algorithm; the root mean square errors (RMSE) of the localization errors are 1.91° (non‐sparse array) and 3.12° (sparse array), respectively. Finally, the blind source separation algorithm was used to remove the field noise, which verifies the algorithm and sparse concept accurate and economical in practical application.