"Jew Suss - Rise and Fall" by Oskar Roehler tells the true story of a little-known actor who is offered the lead role in the biggest anti-Semitic smear film commissioned by Hitler's propaganda minister Joseph Goebbels (Moritz Bleibtreu).
The new picture had been one of the most eagerly awaited at this year's Berlinale but it drew scornful howls as the credits rolled at a press preview.
Roehler, whose last Berlinale competition film "The Elementary Particles" won the Silver Bear prize for best actor for Bleibtreu in 2006, defended his picture for liberties it takes with history.
"We were seeking historical precision," he told reporters. "But there were a few things open to interpretation. We wanted to show a human drama but we wanted to ratchet certain things up a bit to make his moral conflicts clearer. We make movies and not documentaries, also because we want to depict human feelings."
The 1940 film was based on the story of Joseph Oppenheimer, known as “Jud Suss,” or “Jud Süß” in German, who was a financial advisor to the Duke of Württemberg in the 18th century. He introduced exorbitant taxes and tolls and was finally hanged in 1738 for high treason.
Under the Third Reich, the story was retold as a parable about the alleged Jewish threat in 1930s Europe using grotesque anti-Semitic stereotypes. It became a runaway success in Fascist Europe, seen by some 20 million people.
"Jew Suss" delighted audiences at its premiere at the Venice Film Festival founded by Mussolini and was later shown to concentration camp guards and German soldiers on the front, who shouted its anti-Jewish slogans along with the actors on screen.
The lead actor, Ferdinand Marian, played in the current film by Tobias Moretti, agrees to perform the role for the Nazis although he is married to a Jewish woman, portrayed by Martina Gedeck, best known to international audiences from the Oscar-winning Stasi drama "The Lives of Others."
His wife Anna is sickened by his choice and Marian himself fears being typecast as a Jew, but Goebbels makes him an offer he can't refuse.
Marian's Jewish wife is an invention of the film-makers - a device that drew some sharp criticism from reporters as a cheap dramatic ploy.
Audiences also jeered a scene in which Marian seduces the wife of an SS officer and she lustfully shouts "Jew" as they make love.
Bleibtreu, one of Germany's most popular actors, defended the picture against hostile questions from reporters.
"When you make a movie you take certain liberties. Having Hitler and Goebbels die in a fire in a cinema in Paris - that's not taking liberties with history?" he asked, referring to the spectacular finale of last year's "Inglourious Basterds" by director Quentin Tarantino.
The Berlinale film depicts how the actor's choice destroys his life, setting off a chain reaction that sees his wife and a close Jewish friend deported to the concentration camps.
In real life, Marian was effectively banned from acting after the war and "Jew Suss" director Veit Harlan was tried but ultimately acquitted. Screenings of the film in Germany have been severely restricted by law since the war.
"Jew Suss - Rise and Fall" is one of 20 pictures vying for the 60th Berlinale's Golden Bear top prize, to be awarded by a jury chaired by German director Werner Herzog on Saturday.