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If that's the oil pressure gauge line, then no problem cutting it and removing the fitting from the block. Going from a 216 to 261, you probably need a higher range gauge. There's no "sensor", but just the pressure gauge that reacts to the oil pressure transmitted up the tube. Most modern gauges are electronic, but the old ones directly measure the pressure from oil sent to the gauge. If the line breaks, oil will be pumped out the break, wherever it occurs, in the engine compartment or behind the dash, so you need to be careful on routing so the tube doesn't rub on anything that might wear thru it. You should also put a vibration loop in the tube if you use copper so it doesn't break from vibration. Walter's suggestion of plastic tubing alleviates the vibration problem. It needs to be rated for the pressure expected (probably 100 psi minimum).