An improved level set approach for computing the incompressible two-phase flow with significantly deformed free interface is presented. The control volume formulation with the semi-implicit method for pressure-linked equations consistent (SIMPLE C) algorithm incorporated is used to solve the governing equations on a staggered grid. Several improvements concerning the computational grid, interface update, reinitialization procedure etc, are tested and found to be effective in promoting the convergence and numerical stability. The motion of a bubble or drop in a liquid with large density ratio, viscosity ratio and surface tension is numerically simulated. The computational results are in good agreement with the reported experimental data.