For the space charge measurement method with optical excitation for electrical insulation, the distortion of the excitation laser on the measurement signal and the accumulation of space charge have not been discussed before. Both experiment and simulation results show that three types of distorted components introduced by optical excitation can lead to distortion of the upper interface signal. Further, the factors causing distortion of the measured signal and the formation mechanism are analysed. A virtual electrode potential compensation method and a distorted component extraction method are proposed. Meanwhile, an attenuation restoration and charge conversion correction factor is introduced, leading to a novel signal processing algorithm adapted to space charge optical measurement methods. Compared with the traditional algorithm, the novel algorithm has an error of less than 1% in the calculation of charge and electric field strength, with an increase in accuracy of 47.7% and 9.81%, respectively. By applying the novel restoration algorithm, the comparison shows that the space charge accumulation does not change significantly under laser irradiation, verifying the reliability of the optical excitation. The given algorithm can provide a theoretical and technical foundation for the realisation of the optical measurement method for space charge.