Kessler, who won the title for the third time, knocked Magee down in the second round with a right to the stomach and floored his opponent again with another body shot in the third.
The referee stopped the fight 24 seconds into the third round of Magee's first title defence leaving Kessler to aim for a showdown with American Andre Ward or Britain's Carl Froch.
"The first shot he hit me to the body really stung me badly. I just couldn't recover. It took all my might to get up from that shot," Magee said.
"Mikkel is a great champion and all through the fight and the build-up he's treated me with respect, I always knew he was a champion. I trained like a champion, I gave it my all but a body shot like that is hard to recover from."
The 33-year-old Kessler, now a five-time world champion with a 46-2 record, returned to the ring last year after an eye injury, sustained in a Super Six defeat to Ward in 2009, forced him to withdraw from the tournament in 2010.
His only other loss was to Britain's retired Joe Calzaghe.