The decision was announced by Parliament President Antonio Tajani as he opened the voting session in Strasbourg.
Tajani said that he had decided to impose sanctions "unprecedented in severity" after the MEP said women were "less intelligent than men."
He said Korwin-Mikke will forfeit his daily subsistence allowance for 30 days, will be suspended from parliamentary activities for 10 days an prohibited from representing the Parliament for one year.
The daily allowance - to cover accommodation and other costs when travelling to Strasbourg or Brussels - is currently €306.
The severity of punishment is commensurate with the gravity of the offence, Tajani told MEPs.
He went on, "I will not tolerate such behaviour, in particular when it comes from someone who is expected to discharge his duties as a representative of the peoples of Europe with due dignity. By offending all women, the MEP displayed contempt for our most fundamental values.
"It is because of this that I immediately opened an inquiry into the matter that I brought to a swift conclusion, imposing a penalty commensurate with the gravity of the offence."
Tajani also said he wanted to extend his apologies to anyone "who was hurt or offended" by the MEP's outburst, emphasising that such behaviour "will never be permitted."
Korwin-Mikke, who is a non-attached MEP, made his comments during a plenary debate on the gender pay gap on 1 March.
He was not available for comment on Wednesday.
However, a Parliament source said, "Matters concerning the duration of an MEP's mandate, including deciding on its end due to resignation, death or withdrawal, are regulated by the law of the EU country where the MEP was elected.
"After the offending intervention by the Polish MEP, Tajani was immediately alerted to it by several MEPs. After consulting the Vice-President chairing the session at that time and watching footage of the remarks, the President decided to open a procedure under Parliament's rules of procedure."