Finance Minister Wolfgang Schäuble gave a green light "in principle" to stumping up a reported €2.5 million ($3.5 million) to an anonymous whistle-blower for a disc that could net the taxman around €100 million.
In an interview with the Augsburger Allgemeine regional daily, Schäuble said: "There was no other decision we could have taken" after a 2008 legal precedent whereby Germany paid for tax data from Liechtenstein.
He added that the government felt it was on solid legal ground as no court had yet questioned the validity of the Liechtenstein data.
However, the Financial Times Deutschland reported that Germany's constitutional court was already examining whether these data - which resulted in the taxman clawing back some €180 million - were admissible.
Analysts too said judges could throw out information obtained in this manner.
Tobias Singelnstein, a professor of law at Berlin's Free University, told news agency AFP: "It is a bit absurd to prosecute a breach of the law by ourselves breaking the law."
The affair, which was splashed on the front page of most German newspapers, has also raised the moral question over paying for "stolen" information and has soured Germany's relations with its Alpine neighbour.
Defence Minister Karl-Theodor zu Guttenberg, a member of the Bavarian sister party of Chancellor Angela Merkel's conservatives, said he would have a problem with using data that was obtained by legally questionable methods.
One prominent legal expert quoted in the Financial Times Deutschland also warned that the government's purchase of this data could prompt copycat thefts.
"To buy stolen data for a second time is a clear incitement. The state is creating a climate in which every Tom, Dick and Harry will feel the urge to steal data from his employer," Erich Samson was quoted as saying.
The public and the press were also divided by the saga. A poll by Stern magazine released on Tuesday showed a solid majority of Germans - 57 percent - in favour of buying the names, with 43 percent opposed.
The Frankfurter Allgemeine Zeitung daily described the disc as "forbidden fruit" and said the government "should not deal with data thieves."
On the other side of the fence was mass circulation daily Bild, which wrote
in an editorial: "It is right and sensible that the chancellor spoke out so quickly in favour of buying the information. The federal government's message is crystal-clear: if you evade taxes, your number is up."
What was also crystal clear is that Berlin was facing an increasingly vitriolic diplomatic showdown with Switzerland, which views the saga as another attack on its cherished tradition of banking secrecy.
A spokesman for the Swiss Banking Federation, Thomas Sutter, called into question the ratification of a tax treaty between the two countries.
"The German side cannot support a criminal act and then enter into negotiations with Switzerland," Sutter told the Frankfurter Rundschau.
Pirmin Bischof, a Swiss lawmaker, said: "The relations between Germany and Switzerland will clearly not be helped if Germany buys these data."
"This is a new form of bank robbery. Before, you had to go into the bank and extract the money using a gun. Today, you can do it electronically by stealing data," he told German radio.
The Swiss Finance Minister has warned Germany that it would not provide administrative assistance on any tax inquiry based on stolen data.