Efraim Zuroff of the Simon Wiesenthal Center in Jerusalem on Sunday called the mock ad in the Eesti Ekspress weekly a "perverted attempt at humor at the expense of the Nazis' millions of victims."
Alla Jakobson, spokeswoman for Estonia's Jewish community, said in newspaper Postimees that the incident shows Estonian society is experiencing "major problems with moral and ethical values."
Disputed ad. 'Major problem with ethical values'
"It was published on our jokes page. I think people living in other cultural environments than ours just don't understand it like we do," Sulev Vedler, deputy editor of Eesti Ekspress, which has the second-highest weekly circulation in Estonia, told AFP.
He claimed the "Doctor Mengele weight-loss pill" ad was a swipe at national gas firm GasTerm Eesti, which last month posted a photo of the Auschwitz death camp's notorious "Arbeit Macht Frei" gate on its website.
Symbol of Holocaust horrors
GasTerm Eesti rapidly pulled the photo and apologised for what it claimed was a misplaced attempt to contrast lethal gas - which was used to kill Jews at Auschwitz - with the safe, home-heating variety.
"For us it was an anti-fascist joke and a reaction to the recent, improper advertisement of one Estonian company. We didn't mean to have fun at the expense of any nationality, there is no nationality mentioned in the picture," Vedler said.
But by using the name of Mengele – a Nazi German doctor who experimented on inmates during World War II – Eesti Ekpress tapped a symbol of the horrors of the Holocaust.
The wartime history of Estonia, a nation of 1.3 million people, is highly sensitive.
Some here saw the Nazis as a lesser evil, after Germany drove out Soviet troops, who had seized the country in 1940 and deported thousands of Estonians to their deaths and did so again after the war.
But the Nazis brought their own terror, sometimes helped by local collaborators.
Estonia's pre-war Jewish population was 4,400. Most fled before the 1941 Nazi invasion, but the 1,000 who remained were killed.
The Nazis also sent up to 10,000 foreign Jews to camps in Estonia, where most died.
The Red Army drove out the Nazis in 1944. Estonia was ruled by Moscow until the Soviet bloc crumbled in 1991, and joined the EU in 2004.
The Associated Press and AFP contributed to this report