Christoph Strässer, commissioner for human rights policy and humanitarian aid, said he was "concerned" about the suspended sentence for Navalny and jail term for his brother Oleg in a controversial fraud case.
He said Navalny had tried to make use of his right to free expression in a non-violent way and that he "must be allowed to continue to participate in political life".
Germany, with its tradition of "Ostpolitik", or eastern reapprochement, is increasingly seen as Europe's main interlocutor with Moscow, making any rebuke from Berlin particularly stinging.
Strässer called the court's decision "another blow against outspoken civil society in Russia" and pointed out that "it is the responsibility of the Russian government to ensure the rule of law and independence of the judiciary".
"I call on the Russian government to investigate the criticism from human rights organisations of this case and allow peaceful public protests against the ruling," he said in a statement.
After his sentence, Navalny called for mass protests to "destroy" President Vladimir Putin's regime.
At a lightning hearing that was abruptly brought forward by two weeks, a Moscow judge found both Navalny and Oleg guilty of embezzlement and sentenced them to three and a half years in what is widely seen as a politically motivated case.
But while Navalny's sentence was suspended, his younger brother, who is not involved in politics, was ordered to serve the time behind bars in what observers saw as an attempt to muzzle the Kremlin critic ahead of the 2018 presidential election by taking his brother hostage.
"This regime does not just destroy its political opponents… now they target, torture and torment the relatives of its political opponents," the 38-year-old Navalny said outside court, calling the verdict "the most mean and disgusting" possible.
"This regime has no right to exist, it must be destroyed," he said. "I call on everyone to take to the streets today."
The charismatic Navalny has become a major thorn in the Kremlin's side over the last few years, first building a massive support base on the internet as an anti-corruption blogger, then rallying tens of thousands during the 2011-12 anti-Putin protests and most recently coming in second in last year's Moscow mayoral race after a grassroots campaign against the Kremlin-backed candidate.
The Navalny brothers were accused of defrauding French cosmetics company Yves Rocher of nearly 27 million rubles (more than half a million dollars at the exchange rate at the time), although the firm has said that it suffered no damages.