"As long as a champion of racial division is a step away from the Oval Office, it would be impossible to take Trump's efforts to heal the nation seriously," said Reid in an impassioned floor speech.
Reid called on Trump to rescind his job offer to the former Breitbart News chief who was the CEO of Trump's insurgent campaign.
"Rise to the dignity of the office of the president of the United States. Instead of hiding behind your Twitter account, and show America that racism, bullying and bigotry have no place in the White House or in America," he said.
Reid argued that Trump's election had triggered a spree of hate crimes in the country by people emboldened by Trump's election.
"We have a responsibility to prevent Trump's bullying and aggressive behavior from becoming normalized in the eyes of America," said Reid, who is retiring at the end of the year. "We have a responsibility to say it is not normal for the KKK, the Ku Klux Klan, to celebrate the election of a president they view as their champion with a victory parade."
The No. 2 Senate Republican fired back at Reid for undermining Trump and Bannon and not giving them a chance.
"He does nothing to contribute to the healing of our country after a very polarizing, hotly contested election by continuing to pile of the President-elect and his team," Sen. John Cornyn of Texas said. "We had an election. The American people voted. The American people chose their next president."
Speaking to reporters Wednesday, Senate Majority Leader Mitch McConnell said he would not comment on White House appointments.
Reid's late-afternoon floor speech came the first day the Senate was back to work for its post-election lame-duck session.
He was one of many Democrats who spoke out against Bannon.
Sen. Jeff Merkley, D-Oregon, led a news conference in the Capitol with four other Democrats next to a sign that read "Fire Bannon."
Sen. Dianne Feinstein, D-California, was one of several Democrats issuing statements against the appointment. She warned that many minority communities were fearful of a Trump presidency even before he picked Bannon.
"Hiring Steve Bannon as a senior adviser in the White House will only further inflame these fears," she said. "Virtually everyone who has contacted my office has expressed shock that Bannon, so closely linked to anti-Semitic and misogynistic opinions, will have the ear of the president."
Republicans appeared more supportive.
Sen. Rand Paul, R-Kentucky, said Democrats were being "sour grapes" because they lost the election and he hadn't seen anything about Bannon that was problematic.
"I think there are a lot of sour grapes out there. After people lose the election, they are pointing fingers trying to make him into a caricature. I've met him. I don't think he's a caricature of any of those horrible things the left is trying to bring out about him. I don't believe him to be a racist," Paul told CNN.
South Carolina Republican Sen. Lindsey Graham told reporters he has not met Bannon but noted the Republican Jewish Coalition is supporting him, so will wait to make a decision. Graham did say, however, that he is not a fan of the "alt-right."
"I will say this, the website in question was a friendly site to the alt-right. I don't like them and they don't like me, and I'm glad," Graham said.
Democrats can complain about Bannon's new job but there's little they can do about it. For one thing, the position does not require Senate confirmation.