"He should be put in a solitary cell with a screen, and on a screen, for at least five years of his life, [would be] pictures of his victims," Wiesel said at a speech in midtown Manhattan, the New York Post reports.
The punishment would constantly remind the Ponzi player of the thousands of investors he robbed, Wiesel said.
"Look what you have done to this lady. Look what you would have done to this child," Wiesel said the pictures would show Madoff.
Madoff swindled Wiesel out of $15.2 million set aside for Wiesel's charity, The Elie Wiesel Foundation for Humanity, which provides aid to Jewish refugees overseas.
Wiesel said in the talk - titled "Madoff and the Meltdown" - that the con man marketed himself to investors as a "savior" but was actually a cold-blooded thief who systematically ripped off thousands.
"He presented himself as a philanthropist. He gave so much money to institutions," said Wiesel, who started investing with Madoff nearly a decade ago when the two were introduced by a mutual friend.
"Psychopath is too nice a word for him. The man knew what he was doing," said Wiesel, who won the Nobel Prize for his classic Holocaust novel, "Night."
The Jewish community has rallied around Wiesel, the author said, sending financial contributions and well-wishes to his foundation.
"Hundreds of people have sent us money through the Internet, saying 'how could he have done this to you'?" Wiesel said.
Madoff took a reported $50 billion from his investors - including A-list celebrities, charities, educational institutions and banks.