The incident took place two weekends ago at in Bad Reichenhall in Bavaria, during a day where German army barracks were open to the public, according to the Bild am Sonntag newspaper.
Children were given dummy weapons and the fake village was made complete with bullet holes, blackened windows and smoke bombs, all designed to make the exercise more realistic, Bild reported.
The real problem, however, was the mock village's name: 'Little Mitrovica.' During World War II the German military controlled part of the real Mitrovica in Kosovo, forcing 300 Roma into concentration-camp type work and eventually killing them.
The town was also the the site of serious ethnic violence in 1999 as Albanians in the region attempted to break away from Serbia. During the war in Kosovo, thousands of Roma were also expelled.
One possible explanation for the name choice could be that Bundeswehr troops were stationed in Kosovo as part of NATO's KFOR mission in the now independent province.
Objections to the children's camp were first raised by the radical leftist group Rabatz, which called the incident a “scandal” in a statement.
“This is a disgusting insult to the victims” in Mitrovica, said spokeswoman Anna Jade. She called for those responsible to resign and also questioned allowing children to play with fake weapons.
A Bundeswehr spokesman told Bild that officials were investigating the matter.
“We'll let the process determine if there were violations at the open house day,” he said.