German domestic intelligence classifies Alternative for Germany party as “suspected” of ties to right-wing extremism, parliamentary sources and Der Spiegel report.
Germany has placed the far-right AfD party under surveillance for posing a threat to democracy, local media has reported.
The move is seen as a blow to the anti-immigration party in a big election year.
The Federal Office for the Protection of the Constitution (BfV) has classified the Alternative for Germany as "suspected" of having ties to right-wing extremism, Der Spiegel magazine said.
The decision, reportedly made late last week, will allow intelligence agents to shadow the party, tap its communications and possibly use undercover informants.
It follows a two-year investigation and a report containing over 1,000 pages of evidence, including several hundred speeches and statements by AfD members at all party levels, Der Spiegel said.
The anti-Islam, hard-right AfD has often courted controversy by calling for Germany to stop atoning for its World War II crimes. Senior figure Alexander Gauland once described the Nazi era as just "a speck of bird poo" on German history.
While it is the largest opposition party in parliament, it has seen its popularity fall as the pandemic has kept the spotlight firmly on Chancellor Angela Merkel's ruling coalition parties.
It faces six regional elections this year and a general election on September 26, the first in over 15 years that will not feature Merkel, who is retiring from politics.
The BfV had already placed a radical fringe of the party known as The Wing under surveillance last year over associations with known neo-Nazis and suspicions of violating the constitution.
The faction, led by firebrand Bjoern Hoecke, dissolved itself last March but many of its 7,000 members remain active in the AfD.
The Wing's continued influence in the party was one of the reasons for the BfV decision, according to Der Spiegel, along with links to various other right-wing extremist organisations.
The AfD's regional branches in Thuringia, Brandenburg, Saxony and Saxony-Anhalt have also been designated as "suspected cases" of right-wing extremism.
The BfV has not yet begun tracking the party and is unable to announce the decision officially because of an ongoing legal dispute, Der Spiegel reported.