The dad said a man matching the description lured his girl from their cafe in the region on Christmas Day 2006.
He recalled: "I looked for her and saw her with a man I took to be Moroccan. We shouted and she stopped and turned. He disappeared."
The incident took place in Silves - 35 miles from where Madeleine was snatched five months later.
It was investigated by ex-cop Dave Edgar - hired by Madeleine's parents - who linked it to five attacks in the Algarve.
Portuguese police are said to believe the suspect is Euclides Monterio, 40, killed in a tractor accident in 2009.
The ex-heroin addict worked at a nearby sewage plant and called in sick days before she disappeared, and did not return for two months.
Widow Luisa, 40, insisted: "He didn't do anything, he was a good man."