It won't hurt to leave the filter in, but it's not going to do much filtering. The O rings on the inside diameter of the filter are supposed to be a snug fit on the center tube so the pressurized oil gets forced through the filter media on its way to the 1/16" hole about halfway up the center tube as it goes toward the outlet fitting. The spring is supposed to hold the filter element tight against one end so oil can't force itself under the filter element. Whether or not the filter element is the right diameter is far less important than its fit to the center tube.
Jerry

"It is better to be silent and be thought a fool than to speak and eliminate all doubt!" - Abraham Lincoln
Cringe and wail in fear, Eloi- - - - -we Morlocks are on the hunt!
There is nothing noble in being superior to your fellow man; true nobility is being superior to your former self. - Ernest Hemingway
Love your enemies and drive 'em nuts!