First question - are they siblings or half siblings/siblings with different parents due to divorce?
And how certain are you that he is actually in love with her? Is it something he told you or are you simply suspecting it?

Well first I dont think you should tell your parents, it would be embarrassing for him and well for me I wouldnt ever betray anyone. You could tell him that he will meet some other girl he will like someday and it shouldnt be his sister that he likes. But ofcourse I think he knows that himself too.

And I also think that your sister wouldnt agree with having a relationship with your brother right? So then theres no problem.. he will get over it in time.

You need to explain to him that it's not natural. Out of all the women in the world, he can't turn to someone he's related too! He needs to find a girlfriend.
He probably just admires her and has confused sibling love for real love and obviously, she's female. I'm assuming he isn't around females very often. You should try and tell your parents if it gets out of hand. He's probably just going through a weird stage.

How old are your brother and sister?

Just tell him all you think about that ..
I think he'll eventually get over it ..

But , do not tell parents .. 0.o

I think it's like some kind of a phase , just like puberty xD

Anyway .. Tell him your opinon on it , even thought I think he'll get over it ..