Falkvinge wrote a polemic in his personal blog at the weekend outlining "three reasons why the ownership of child pornography must be legalized in the coming decade."
The man hailed as a "pioneer" of the Pirate movement, argued that the ban on owning images of children being raped was "an open wound in the tradition of the enlightenment and the freedom of information."
He said that as long as this ban remained in place, there would always be bans on other kinds of information.
Falkvinge has "clearly got tangled up in his own thinking," said Bernd Schlömer, chairman of the German Pirate Party, the Express newspaper group reported on Monday.
"Like society in general, the digital community needs to cooperate and have a functioning legal system."
Berlin Pirate Stephan Urbach said Falkvinge's blog post disqualified him as a serious political activist.
Falkvinge was chairman of the Swedish Pirate Party from its foundation in 2006 to 2011 and was celebrated at the German Pirate Party's conference this April, the paper said.
German press reports suggest that Falkvinge stepped down after previously expressing similar opinions.