An algorithm for optimally allocating Permanent magnet biased Saturation based Fault Current Limiter (PMFCL) in large power grid was presented. The current limiting mechanism of PMFCLs was briefly introduced. Short circuit current margin was defined and can be used as the criteria of over standard bus selection. Bus self impedance was regarded as the measurement index of short circuit level. On account of the increment of bus self impedance, an optimal allocation evaluation function with consideration of the overall current limiting effect and economy was built. It is proposed that the starting condition of PMFCLs and the sensitivity index of bus self impedance with respect to the branch impedance can be utilized to greatly decrease the searching space. Finally, the algorithm for optimally allocating PMFCLs was concluded on the basis of evaluation function and sensitivity index. Simulation of IEEE 39 bus system was completed by using the proposed optimal allocation algorithm and genetic algorithm function of Matlab. The result suggests that the process of optimal allocation has relatively higher efficiency when compared with the method, in which sensitivity is not considered, the short current of over standard substations is restrained successfully and some abundant values are reserved. Furthermore, the effect of current limiting is better when the current exceeds the standard one more seriously. It verifies the feasibility and effectiveness of the proposed optimal allocation algorithm.