Fifteen to 20 suspected right-wing extremists held a torchlight procession through the eastern German town of Graefenhainichen during the night, police said Saturday.
The men in dark clothes, some wearing white masks, carried banners, drums and flaming torches, police in the eastern part of the state of Saxony-Anhalt said.
The group tossed their torches onto a pile on the central Kirchplatz square before fleeing when police arrived.
"A political motivation cannot be ruled out," the police report said.
Germany's Central office for Political Education said that such processions were typical of a particular group of neo-Nazis.
Organizers of an international children's festival scheduled for the same square on Saturday afternoon said the procession had not been random. "There is definitely a connection," Uwe Kuenemund of the offen.bunt.anders (open.colourful.different) club told dpa.
He said that, in December, there had been an acid attack on the venue for a party organized for the local community by the club.
Graefenhainichen has seen extremist violence in the past, with proposed accommodation for refugees deliberately flooded and then pelted with stones. In February the same building - still empty - was shot at. Investigators found 13 bullet casings at the scene.
The site has been peaceful since the first refugees took up residence in March.
Separately, in the western city of Dortmund, there were clashes when thousands of left-wing protesters rallied against a planned march by 900 neo-Nazis.
Some 2,500 people took part in an official counter-demonstration, while, elsewhere in the city, a further 2,500 radicals took to the streets, some of them intent on causing trouble, according to the police. There were 5,000 officers deployed to the city.
Police used tear gas during some of the clashes.