Oakley and Dolan have been engaged in a long-running feud and Dolan told ESPN Radio that Oakley is not welcome in the building.
"Oakley will never be allowed to enter MSG again," Dolan said before clarifying.
"It's not necessarily a lifetime ban, but I think the most important thing with that is you need to keep the Garden the place that's comfortable and safe for everyone who goes there."
Dolan ordered arena security to remove Oakley during Wednesday's game between the Knicks and Los Angeles Clippers.
The 53-year-old Oakley was restrained by several security guards and taken to the New York City Police Department and charged with three counts of misdemeanor assault and one count of criminal trespass.
Oakley has been highly critical of Dolan and the situation boiled over during a nationally televised broadcast.
Oakley denied he said anything to Dolan at Wednesday's game, though other witnesses claim he said things in Dolan's direction.
Dolan said Oakley has behavioral issues and is "both physically and verbally abusive." He said he understands why fans still admire Oakley, who played for New York from 1988-98.
"Certainly Charles is a great Knick -- we should probably get that off the table," Dolan said. "I loved watching Charles play basketball for the New York Knicks.
"(Fans) remember when Charles played; he was tough, he was great, and he always had 110 percent energy. And I think, you know, our team hasn't had what Charles had so I think that makes him even more beloved especially considering how we're doing."
Dolan said he also fired Frank Benedetto, the arena's senior vice president for security, in the wake of the incident.
"That was just a situation where the person didn't work out and this was probably the last straw," Dolan said. "We're obviously looking at everything that we did here along the way and what happened. That's one of the casualties."