This paper presents a novel architecture for inductive proximity sensors using sigma delta modulation. The LC-oscillator is included in the sigma delta control loop providing amplitude regulation and high precision analog-to-digital conversion in one block. The circuit consists of a new LC-oscillator suitable for clocked tail current injection, two SC integrators and a clocked comparator forming the sigma delta modulator and a PLL providing the clock for synchron amplitude sampling. The circuit was realized in a 0.8 mum CMOS technology of the Fraunhofer Institute for Microelectronic Circuits and Systems. Measurements show the capability of the system to distinguish even smallest differences in the target distance.