ReutersGermany's Alternative für Deutschland (AfD) party has been designated as right-wing extremist by the country's federal office for the protection of the constitution.
"The ethnicity- and ancestry-based conception of the people that predominates within the party is not compatible with the free democratic order," the domestic intelligence agency said in a statement.
The AfD came second in federal elections in February, winning a record 152 seats in the 630-seat parliament with 20.8% of the vote.
The parliament, or Bundestag, will hold a vote next week to confirm conservative leader Friedrich Merz as chancellor, heading a coalition with the centre-left Social Democrats.
The far-right AfD had already been placed under observation for suspected extremism in Germany, and the intelligence agency had also classed it as right-wing extremist in three states in the east, where its popularity is highest.
The agency, or Verfassungschutz, said specifically that the AfD did not consider citizens of a "migration background from predominantly Muslim countries" as equal members of the German people.
Outgoing Interior Minister Nancy Faeser said the agency had made its decision after a comprehensive review with "no political influence".
It is thought the change in designation of the AfD enables domestic intelligence agencies to lower the threshold for using informants and surveillance in monitoring the party.
