A variety of optical measurements, including retardance/birefringence change, have revealed transient optical and structural changes associated with action potential propagation. Those changes can be understood better by developing new techniques and improving the current approaches. To detect transient retardance changes in a stimulated nerve, we propose a differential phase technique utilizing two orthogonal polarization channels of a polarization-maintaining fiber based interferometer. The superior sensitivity of the system (10.4 pm) is promising to achieve a non-contact optical measurement of action potential propagation in reflection mode, and to study the transient retardance changes during neural activity.