Klaus Naumann told the international war crimes tribunal in The Hague about three meetings he had with Mr Milosevic before the controversial Nato air campaign began.
Drinking plum brandy in Belgrade's presidential White Palace, Mr Milosevic is alleged to have told Nato officials that the best way to resolve the problems in Kosovo was to repeat what happened in Drenica in 1945, when ethnic Albanians who wanted to unite with Albania were shot by the Yugoslav Government.
General Naumann cited Mr Milosevic as saying: "One of the preconditions to a solution in the Kosovo area is to achieve a balance between the two ethnic groups."
"We'll do the same as we did in Drenica in 1945-1946. We got them together and shot them," he said, according to General Naumann.
'At the helm'
Mr Milosevic's indictment includes five counts of war crimes in Kosovo, as well as charges relating to alleged crimes in Croatia and Bosnia.
For a successful prosecution, lawyers need to prove that he was fully in control of what Serb forces were doing.
General Naumann insisted that Mr Milosevic was in charge of events as they unfolded in Kosovo.
"He was the man who really took control of the situation. he gave the directions," he told the court. "It was him who took the decisions."
In this, he echoed the statements made by US diplomat William Walker before the court on Wednesday.
Mr Walker, former head of the Kosovo Verification Mission - a group of international observers - told the court that Mr Milosevic's knowledge of what was going on in the province was "detailed".
"I never wavered in my opinion that I was dealing with the person who was in the maximum control of events in Kosovo," said the diplomat, who also gave a gruesome account of the bodies of dozens of ethnic Albanians he said he saw in the village of Racak.
Mr Walker's allegations of a "civilian massacre" carried out by Serb forces played a key role in forming international opinion that led to Nato's military intervention in Kosovo.
Mr Milosevic is now due to cross-examine General Naumann. The former Yugoslav leader has based his defence on the charge that Nato and Kosovo rebels carried out crimes against the Yugoslav people.
He says that his forces were protecting Kosovo's Serb population from terrorists.