He cannot remove Loki's power. To strip him of this- as his council has suggested- would be to strip his Almost-Son (and it had been so near a thing, to secure the man to him and to Asgard as he had secured the babe, the boy, and the youth) of life. To pull Loki's magic from his being would be like to tearing out his heart, his lungs. A man- even a god- cannot live without bone, muscle, and sinew. And such is seidir to Loki.
Odin is no kin-slayer.
For as much as Loki is not his by blood and birth, Odin knows that they are bound as family. He sees it with the eye he no longer has; the eye which stares sightlessly up from a bottom-less well. The wisdom it gives him is great, but Odin wonders in rare moments if this deeper sight he gained is not as much part of the price as the loss of that lesser vision he sacrificed. He wonders that now.
There are pitiful few options. Odin is under no illusion that Loki can be held for a god's eternity. Loki is frighteningly clever and ever resourceful. It is a gift, but it serves them ill now.
Loki must be detained, at least for the hundred or more years it will take the disaster on Midgard to ease into history. Human memory is so malleable and short. Today that is a good thing.
But this will not merely be a matter of waiting out the wrath of Loki's victims. Loki has changed. He will not emerge from his punishment with a bruised ego and a new tale to his name. He is no mischief maker now. There is something... Odin cannot find quite the name for it. He would call it wildness were Loki not so collected. He would name it madness but that Loki's intellect is intact and sharp as ever.
Loki is not broken, but he is certainly no longer whole.
It is a puzzle, but one which Odin has not leisure to contemplate. He does not trust the former prince's vague account of his unsought alliance with the Chitauri. He only knows that the man who stands before him now, wearing chains and muzzle as proudly as royal armour, has become very dangerous.
Odin senses the hand of Fate reaching for Loki. He feels it molding his Once-Son into a force of Nature herself. Chaos has never before been embodied in one of the gods and the All-Father fears what this portends. He fears that the universe has begun to construct its end, and it will always, always come too soon.
If existence ends at Loki's hand, it will be wild, it will be mad, and it will be very, very cold.
Odin knows: Loki is no monster. But he has become- continues to become- monstrous.