Some 30,800 clients in Germany had accounts with the Icelandic bank, a BaFin statement said.
BaFin "was obliged to take this decision to protect assets in the German subsidiary" because the parent group "was no longer in a position to provide it with sufficient liquidity," the statement added.
The German unit had total assets of €308 million ($420 million), but its internet site said late Thursday that "no withdrawals are currently possible."
According to the Friday edition of Financial Times Deutschland, around €200 million have been withdrawn from German accounts this week, however. Kaupthing's operations in Britain, Belgium, Finland, Luxembourg and Sweden have been halted as well.
Icelandic authorities have nationalised the country's three biggest banks in recent days as the nation's economy verges on collapse amid the global financial crisis. Observers there say the coalition government of Icelandic Prime Minister Geir Haarde risked implosion.
The International Monetary Fund said Monday it had sent a team to Iceland to examine the situation, although Haarde said Reykjavik had not asked for any economic aid from the organization.