Thank you for your reply Steve,
Yes i can't isolate the water tank completely but i have stimulated it with a small capacity tank laying in a completely different floor and different location but the problem remain same.
When powered by battry sometime it work but not always. Sensor value still float around but not very rapidly but it should not float at all by design.
As i indicated earlier, i have similar setup in past which work for more than 2 year without any complain and now with Arduino its not helping me.
The only alternative and cheap solutions i can think of is reed switch based magnetic floats but reading feedback from other people it sound like it does stuck sometime like 2 times out of 100 attempt or so.
Pressure/capacitance/ultrasonics have there own problem's and frankly i just dont want to go in that direction.
Apart from all these, the cheap diy sensor should work but just have to figure out how to stabilize the floating values.