The present work investigated the dispersion behavior of $Y_2O_3$ particles into AISI 316L SS manufactured using laser cladding technology. The starting particles were produced by high energy ball milling in 10 min for prealloying, which has a trapping effect and homogeneous dispersion of $Y_2O_3$ particles, followed by laser cladding using $CO_2$ laser source. The phase and crystal structures of the cladded alloys were examined by XRD, and the cross section was characterized using SEM. The detailed microstructure was also studied through FE-TEM. The results clearly indicated that as the amount of $Y_2O_3$ increased, micro-sized defects consisted of coarse $Y_2O_3$ were increased. It was also revealed that homogeneously distributed spherical precipitates were amorphous silicon oxides containing yttrium. This study represents much to a new technology for the manufacture and maintenance of ODS alloys.