The reigning champions were drawn against Neymar's men on Monday after their second-placed finish in Group H denied them a seeded berth.
"Madrid like big challenges and they got just that. It will be a wonderful challenge against Paris," Alonso told UEFA.com.
"It is one of those games that you really like, and that those who go to the Bernabeu like to see.
"It is tough to say who might be favourites, even though that means nothing at the end of the day. I am backing Madrid."
0 - Unai Emery have never won in his ten games at Santiago Bernabéu in all competitions (9L 1D). Psycho pic.twitter.com/rMcDnr3QnD— OptaJose (@OptaJose) December 11, 2017
Emilio Butragueno, another ex-Madrid star and the club's current director of institutional relations, described PSG as having the potential to go all the way.
"This game could well have been the final such is the power of both sides," said the former Spain striker.
"A draw at this stage is like that, though, and one of the two sides will be knocked out.
"Paris are getting stronger year on year. They played an impeccable group stage and have huge potential."