Police said on Monday there was no new information on the threat that forced people in costume already lined up for the event to go home.
Shortly after 11am on Sunday, police shut down the city's Altstadtmarkt, forcing the crowds already waiting for the parade to start to make their way home.
Cafes and restaurants, already full of revellers, were also forced to close in the city, just east of Hanover in Lower Saxony.
"This is not just an SMS or a threatening phone call," said a police spokesman.
Local police Chief Michael Pientka said the threat came from a credible witness already known by security officials.
Pientka also announced officers had found a pair of suspicious packages in garbage cans in the threatened area, though both turned out to be harmless.
"This is a sad day for our city," said Braunschweig Mayor Ulrich Markurth. "However, the assessment of the police left us with no other choice."
Lower Saxony's Interior Minister Boris Pistorius also said cancelling the event was the only option.
"When there is concrete evidence that people are endangered, then the safety of those people has to take priority," said the Social Democratic Party (SPD) politician.
In Monday's press conference, police would not say if the threat had been made by an individual or a group.
But Pientka did add that there was an "Islamist" scene in Braunschweig.
The announcement came just hours after Danish police in Copenhagen shot a man responsible for a shooting rampage that ended the lives of two people and injured five police officers.
Police announced on Monday two further arrests were made in connection with the shooting.
Interior Minister Thomas de Maiziere said that the Copenhagen attacks showed Germany was not safe from terrorism itself.
"The threat situation in Germany remains high," he said. "Federal and state security agencies take every tip and piece of information with grave seriousness."
Braunschweig's Karneval parade is known as the Schoduvel and is the biggest celebration of the Karneval season in northern Germany. Karneval has its stronghold in the Rhineland.
More than 250,000 people were expected to attend with a further 4,500 people in the parade itself with a planned 100 floats.
Monday is Rosenmontag or Rose Monday in the Rhineland and is the host to the party's biggest parades and gatherings.
Parade organizers in Cologne had already scrapped a Charlie-Hebdo-themed float due to security concerns.
Düsseldorf also announced on Monday morning that its parade would feature a float that lampooned terrorism.
To limit the overwhelming burden on our moderators, it will not be possible to comment on this article. Feel free to join the conversation on our Facebook page.