Lambsdorff's office said in statement that he died suddenly Saturday in the former West German capital Bonn. The cause of death was not immediately clear.
The aristocrat was long one of the leading lights of the pro-business Free Democratic Party (FDP), which served in most coalition governments since World War II including Chancellor Angela Merkel's current centre-right alliance.
A fiscal conservative and former economy minister, he recently blasted Merkel's government for planning tax cuts in the face of a ballooning budget deficit while continuing heavy spending to emerge from the economic crisis.
"If you are taking in less, you must spend less - it's as easy as that," he said.
Born Otto Friedrich Wilhelm von der Wenge Graf Lambsdorff on December 20, 1926 in the western city of Aachen, he pursued studies in law before entering politics.
Known for his sharp tongue, bushy eyebrows and the walking stick he used after a leg injury in the war, Lambsdorff joined the FDP in 1951 and was elected to the Bundestag lower house of parliament in 1972.
He rose quickly through the ranks and became economy minister in 1977 under the Social Democratic chancellor Helmut Schmidt. But he successfully agitated for Schmidt's ouster in favour of the Christian Democrat Helmut Kohl in 1982.
His image tarnished in the wake of a major political contributions scandal linked to the Flick conglomerate and he was forced to step down as minister and later pay a DM180,000 fine (€90,000). But he retained his seat in parliament and in 1988 was elected chairman of the FDP, which he led until 1993.
Merkel said Sunday Lambsdorff as among the "great personalities" behind Germany's unique "social market economy" which advocates free markets with respect for social justice, and praised his work to compensate forced labourers.
In 1999, then chancellor Gerhard Schröder appointed Lambsdorff to lead negotiations with the US government and lawyers and organisations representing victims of the vast Nazi-era programme on a reparations plan funded by the German government and industry.
After two years of talks, the result was a DM10-billion package that garnered international praise.