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Personal laser scanning (PLS) has significant potential for estimating the in-situ diameter of breast height (DBH) with high efficiency and precision, which improves the understanding of forest structure and aids in building carbon cycle models in the big data era. PLS collects more complete stem point cloud data compared with the present laser scanning technology. However, there is still no significant advantage of DBH estimation accuracy. Because the error caused by merging different point cloud fragments has not yet been eliminated, overlapping and inaccurate co-registered point cloud fragments are often inevitable, which are usually the leading error sources of PLS-based DBH estimation. In this study, a novel pre-processing algorithm named annular neighboring points distribution analysis (ANPDA) was developed to improve PLS-based DBH estimation accuracy. To reduce the impact of inaccurately co-registered point cloud fragments, ANPDA identified outliers through iterative removal of outermost points and analyzing the distribution of annular neighboring points. Six plots containing 247 trees under different forest conditions were selected to evaluate the ANPDA. Results showed that in the six plots, error reductions of 53.80–87.13% for bias, 38.82–57.30% for mean absolute error (MAE), and 27.17–56.02% for root mean squared error (RMSE) were achieved after applying ANPDA. These results confirmed that ANPDA was generally effective for improving PLS-based DBH estimation accuracy. It appeared that ANPDA could be conveniently fused with an automatic PLS-based DBH estimation process as a preprocessing algorithm. Furthermore, it has the potential to predict and warn operators of potential large errors during hierarchical semi-automatic DBH estimation. Full article