There is a possibility that the sending unit is not well grounded to the block. Most sending units are shipped with an electrical conducting sealant on the threads. If during installation something like teflon tape was used to prevent leaks a poor ground could result.
You might try running a jumper wire from a good known ground and holding it against the side of the sending unit to see if it changes the reading on the gauge. If the reading changes, the sending unit body is not conducting a good ground from the block.
I hope this helps. Good luck!