This is common. I had the same problem with my 87 300E.

If the water level is fine, you unplug the wire to the sensor and the light goes out, then there is nothing left to be bad but the sensor.

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02 S500
92 500SL
92 400E (Sold)
87 300E (Sold)
83 300D Turbo (Sold)
75 300D (Sold)
74 240D (Sold after 20 years)