Around 1,000 people gathered in the Bavarian city's biggest square for a “Celebration of Democracy,” police reported midday on Saturday.
Protestors also staged demonstrations near the city's convention centre, where the right-wing extremist NPD party is holding the weekend rally.
Some 450 protestors marched through the city from the Bamberg train station without major incident in the morning, police said.
“We will never tolerate, and never stand idly by so that our city can be brought to its knees by right-wing extremists,” said Bavarian State Secretary Melanie Huml during the protest. The city had exhausted all legal means in attempt to prevent the NPD rally from taking place.
The NPD rally is focused on electing a new leader, though it remained unclear on Saturday whether anyone would run against current party leader Udo Voigt.
Bamberg member of the German parliament and Christian Socialist (CSU) party member, Thomas Silberhorn, stressed that if the NPD discriminates against foreigners today, it could later discriminate against the disabled, elderly and ill, reported news agency DDP.
The debate over the NPD is not about left-wing or right-wing politics, but about “democracy and the enemies of democracy,” Silberhorn said. A ban against the NPD should be a “the collective goal of all democratic parties,” he said.
The demonstration is the latest in a series of social and legal challenges to the NPD, which holds seats in the legislatures of two eastern German states.
Some politicians have argued that banning the group altogether would be dangerous, pushing it underground and perhaps making it even more attractive to those disaffected with the politics of the day.