"We come into contact daily with people who feel their privacy has been violated on the internet," Göran Gräslund, head of Sweden's Data Protection Board (Datainspektionen) said in a statement.
"A general criminal penalty would be a tool to help deter these insults."
The agency submitted its recommendations after the government asked for a review of laws on freedom of speech and the press in Sweden.
Currently, websites operated by media companies are protected by free speech clauses included in Sweden's constitution.
However, other websites such as blogs can also claim similar constitutional protections from charges of defamation or slander if the publisher is registered with the Swedish Patent and Registration Administration (PRV).
The Data Inspection Board wants Sweden to adopt legislation to criminalize the posting of extremely offensive and insulting comments on websites regardless of whether they are covered by Sweden's free speech protections.
"It shouldn't make a difference whether serious insults and privacy violations take place within or outside of areas protected by the constitution," said Gräslund.
"A general criminal penalty would help create a balance between freedom of speech and protecting people's privacy."