He will live in a $70,000 two-bedroom weatherboard house paid for by Corrections and placed just outside the prison's fence.
He will wear a GPS monitoring bracelet, making him the first paroled child sex offender to be tracked by GPS.
Corrections Department chief executive Ray Smith said it would cost an estimated $100,000 a year to keep Wilson - about the same as it costs to keep a person in prison, although he would be expected to pay a contribution toward his living costs.
It is understood a resource consent for the house to be moved to the grounds is required from the Wanganui District Council and has yet to be granted.
However, Mr Smith said councillors would have to follow the "right process" and he fully expected to get their co-operation.
It is only the second time in the past decade that a prisoner has been required to live on prison grounds following release from prison. The other was serial sex offender Lloyd Alexander McIntosh, who was once a patient at Lake Alice and resides outside of Christchurch Prison.
Wanganui was chosen as Wilson's place of residence primarily because it was one of the few places in the country where none of his 33 victims lived, along with the space available around the prison and its distance from town, Mr Smith said.
Among his 17 special release conditions, Wilson must undertake a reintegration programme, which will be implemented in association with local Prisoners Aid and Rehabilitation staff (PARS).
He will be unable to leave the prison grounds without being accompanied by two PARS staff, and cannot leave the Wanganui district.
A plan of approved activities will be made each week with PARS staff and probation, so he will be able to go to the supermarket but only in the company of his minders.
Wilson will reappear before the Parole Board in December for a review of his compliance and to assess how he is progressing.
If he breaches any of his conditions, Corrections has the power to ask that he be recalled to prison.
Mr Smith said he asked the Parole Board to approve conditions and restrictions that were at the very limit of his authority, and were a stark contrast to the plans Wilson had for himself, which included having a campervan and travelling around or locating himself in Auckland.
"He would have the most stringent conditions of any prisoner currently," Mr Smith said.
The parole conditions will last for three years, after which he will be subject to 10 years' extended supervision. He will be 79 by the time it ends in 2025.
Mr Smith said he expected his GPS monitoring would continue while he was on extended supervision, as would his residency in the house on prison grounds, provided conditions were met. He would not outline what safety measures were being put in place to protect Wilson, other than to say Corrections and police were working to ensure his safety was guaranteed.
Police national manager of criminal investigations, Detective Superintendent Rod Drew, said Wilson's victims and people living around the prison were informed of the release plan and parole conditions yesterday.
He said victims were pleased to be informed of the conditions, but "but clearly none of them would like to see him in the supermarket" and would far rather he stayed in prison.
Staff and local police would be ready to respond if there was a situation with Wilson and his GPS would be constantly monitored. Locals were not consulted during the planning process but police welcomed calls from anyone who had concerns about Wilson.
Mr Drew said police and Corrections had worked hard to ensure they had the best option, and he wanted to reassure Wilson's victims and the public that they were safe from him.
"Although it's prudent to be wary of him, we no longer need to fear him. We now know all about him, and he can no longer operate in the shadows as he did in the past."
Councillor Ray Stevens said a public meeting on Sunday was a chance for the public to give their feedback on the decision. "The public of Wanganui are urged to attend this important meeting to relay your message loud and clear: Our expectations of maintaining a family-friendly community that we can all feel safe in."
CONDITIONS
He will be required to live at the Wanganui property and not to move from that address or leave the district of Wanganui, without the prior written approval of a probation officer.
When leaving the property he must be accompanied by two people from the PARS reintegration team.
He cannot engage or join any clubs, groups, associations or churches unless with the prior written approval of the probation officer.
He cannot place any advertisement or reference in any printed publication or internet publications, or respond to any such ad by another person without the prior written approval of the probation officer.
He cannot possess or drive a motor vehicle without the prior written approval of the probation officer and is not to possess or consume alcohol or illicit drugs.
He cannot associate or otherwise have contact with any person under 16 unless another adult over 20, who has previously been informed and approved in writing by his probation officer, is present.
He cannot have any female present at his address at any time, unless given prior written approval by the probation officer, and he must not have contact or otherwise associate with the victims of his offending, directly or indirectly.
He cannot undertake any work without the prior written approval of the probation officer.
He must complete a reintegration programme, and regular meetings with a departmental psychologist