Blocking polyether silicone oil is prepared through a reaction between amino-terminated polyether and epoxide-terminated polyether silicones. A fabric finishing agent made with cationic waterborne polyurethane modified by silicone oil is prepared by using polytetramethylene glycol as the soft segment, N-methyl diethanolamine as the hydrophilic unit, and tailor-made blocking polyether silicone oil as a chain extender for modification purposes. The finishing agent and the blocking polyether silicone oil are jointly used to treat cashmere knitted fabric. It is found that resistance to pilling of the treated cashmere knitted fabric is improved from a scale of 2–3 to 4 and its washing shrinkage rate is reduced from 11.2% to 3.3%. The treated cashmere knitted fabric has good hydrophilic ability, high water vapor and air permeabilities, and a soft handle. Moreover, the color of the fabric remains almost unchanged after finishing and the durability of the finishing properties is excellent.