There were two "versions" of the O2 sensor warning lamp in the W201. Up until 1987, the bulb was switched on by a trip pin on the odometer that turned on the bulb at roughly 60K miles. There was no system to reset the switch, so as a result, the only way to turn off the light after replacing the O2 sensor was to actually remove the bulb from the right side of the instrument cluster.

On later models, including yours, there is a computer module that triggers the light, but not based on mileage, but based on the signal from the sensor. It still means that you have to replace the O2 sensor, but there should be a reset button on the top of the module to reset the dash indicator.