Rechargeable Lithium Ion Batteries (LIB) are the key components of the energy storage systems in electric and hybrid electric vehicles. In order to provide a reliable and safe source of energy for driving electric vehicles, the battery packs are controlled by a centralized Battery Management System (BMS). BMS relies on the direct measurement of electric current and voltage to estimate the battery charge conditions in order to ensure the optimum operation of individual cells and to protect them from operation outside their safe conditions. Measurement errors and uncertainties in the estimation algorithms have resulted in applying large safety factors in the design of battery cells. In this paper, an embedded optical sensor technology for direct sensing of the electrochemistry of the battery cell is demonstrated. The sensor consists of an optical fiber, encapsulated inside a battery cell, with direct interaction with the cell electrochemical environment. The development of an optical signal interrogation system is also demonstrated in this research work. The optical fiber sensor operates on the basis of the changes in the optical properties of the LIB cell electrodes, i.e., changes in optical absorption and reflection at different charge levels. The optical sensor not only shows the state of charge in battery cells but also provides information about battery aging and stabilization following charge and discharge cycles. The performance of this sensor has been tested in several conditions including partial and full charge and discharge cycles.