The 2nd-century marble statue of the Roman god of war and Venus, goddess of love and beauty, was fixed for €70 000, without respecting traditional restoration techniques, La Repubblica daily said.
The work was carried out "on the express orders of the prime minister", the report said, adding that the statue was on loan from the Terme di Diocleziano museum and is displayed in the official entrance of Berlusconi's Palazzo Chigi.
But Berlusconi's architect Mario Catalano said the restoration was fully authorised, adding that the added body parts were "removable".
Restorers also added on a hand for Mars and one for Venus.
Penises were often hacked off ancient Roman statues in the past as bizarre souvenirs, as well as out of prudishness during the Christian era.
La Repubblica said the amount of money spent was shocking, considering the scale of cuts that Italy is making to its culture budget.
"This is real aesthetic surgery carried out on the personal whim of the prime minister," said Manuela Ghizzoni of the opposition Democratic Party.
Berlusconi is currently embroiled in two sex scandals, with one woman claiming she slept with the Italian leader twice for €10 000 and was provided with drugs at his villa.
Berlusconi has denounced what he called "indecent attacks" against him.