The invention discloses a paper tube oil retaining type transformer and a manufacturing method thereof. An oil duct is blocked through paper tubes. When a coil is wound to an inner oil retaining position, the inner oil retaining paper tube is obtained through cutting according to the distance between inner supporting bars and placed between the inner supporting bars, then the inner oil retaining paper tube is glued to an inner paper roll by one circle, a wire is wound by being tightly attached to the inner supporting bars, and the inner oil retaining paper tube is pressed tightly to deform slightly so as to block the oil duct completely; the outer oil retaining paper tube is placed after coil winding is completed, the outer oil retaining paper tube is obtained through cutting according to the distance between outer supporting bars and is placed at an outer oil retaining position between the outer supporting bars, then the outer oil retaining paper tube is glued to a wire cake by one circle, the two ends of the outer oil retaining paper tube are limited through a cushion block and the outer supporting bars, and after the outer oil retaining paper tube is well placed, an outer paper surrounding screen is arranged by being attached to the outer supporting bars and pressing the outer oil retaining paper tube tightly. The paper tube oil retaining type transformer and the manufacturing method thereof have the advantages that overall height is low, cost is low, the manufacturing method is simple, detachment is convenient, oil retaining effect is reliable, and the coil can be wound horizontally.