Fr. Dall'Oglio disappeared in the city of Raqqa, northeastern Syria, on July 29.
The organization stated local activists said he was killed while being held by fighters from the Islamic State of Iraq and the Levant (ISIS).
He had served at the Monastery of Saint Moses the Abyssinian, or Deir Mar Moussa, for about three decades.
In January 2013, he returned to Syria and tried to heal rifts between activists in a bid to create a united and strong opposition front.
"Father Paolo is known for his support for the Syrian people in their demands for freedom and dignity," the Observatory said to Allvoices.
"His messages of support and solidarity and calls to end bloodshed cost him dearly, with the Syrian regime denying his right to live in Syria and continue his decades long work in Deir Mar Moussa a monastery that turned into a center for interfaith dialogue."
SOHR urged all Syrian opposition forces to pressure the ISIS fighters to reveal exactly what happened to Dall'Oglio.