Council members in Dresden, the capital of Saxony, declared a "Nazi emergency" due to a rise in far-right extremism and violence.
"Anti-democratic, anti-pluralist, misanthropic and right-wing extremist values and actions, including violence in Dresden, are increasingly becoming apparent," the resolution stated.
"This city has a problem with Nazis and we need to do something about it," local councilor Max Aschenbach said. Aschenbach, of the leftist political party Die Partei, developed the resolution.
"There's been five years of (right-wing rallies), terrorist attacks and terrorist groups – and everyday news reports on Swastikas and Hitler salutes.
"Politicians must finally be able to stand up and say ‘no, this is unacceptable."
The resolution calls on council authorities not to approve far-right marches and to focus on "the causes and consequences of anti-Semitism, racism, and position of extreme right to restore trust in democratic institutions and the appreciation of diversity and respectful solidarity."
Dresden, located in eastern Germany, has been a breeding ground for far-right propaganda and violence in recent years.
The anti-Islamic Pegida movement was born in Dresden in 2014 in reaction to Merkel's pro-refugee policies. Pegida, which in German stands for "Patriotic Europeans Against the Islamization of the West" calls for restricting Islamic immigration.
The Dresden city council voted on the resolution on Wednesday night and it was approved by 39 votes to 29.
Chancellor Angela Merkel's center-right Christian Democrats (CDU) and the far-right AfD opposed the resolution.
The CDU said that the resolution is "pure political symbolism," German news agency DPA said.