With Europe's top economy expecting to take in up to a million people fleeing war and poverty this year, anger has flared among xenophobic groups and members of the anti-Islam Pegida movement ("Patriotic Europeans Against the Islamization of the West").
"Merkel is guilty, commits ethnocide against the German people," read one banner at the rally in Dresden, the historic city in the former communist East where Pegida emerged about a year ago and, after a lull, is now looking to swell its ranks.
Students at the Technical University of Dresden estimated that around 8,000 people took part in the rally.
Waving flags, the agitated crowd cheered on co-founder Lutz Bachmann, 42, who was charged last week with inciting racial hatred by labelling asylum-seekers "animals", "trash" and "filthy rabble".
"It won't stop with 1.5 or two million" arrivals, he said.
"They will have their wives come, and one, two, three children. It is an impossible task to integrate these people."
One banner portrayed Merkel in a Nazi uniform, but the swastika symbol was replaced by a euro sign.
"Islam is Europe's suicide" said another which carried a picture of a woman veiled in an EU flag shooting herself in the head.
"Merkel has to go - we can do it!" they chanted, the second sentence an echo of Merkel's can-do message on managing the migrant influx.
Pegida supporters also yelled "High treason is an offence".
"When young healthy men leave a war zone to move to another country, you call them deserters, not refugees," one female protester said, without giving her name.
Other placards read: "How many ISIS fighters among the 1.5 million?", picking up a new estimate of arrivals for 2015 published by Bild daily.
Police said that the demonstration passed off peacefully despite verbal exchanges between Pegida and counter-demonstrators.
'We are the people'
Pegida emerged about a year ago, with initially several hundred people showing up for "Monday strolls" in Dresden, and swelled in the following months, spawning clone groups in other German towns and cities.
The movement fizzled early this year following bickering among the leadership and after Bachmann sparked an uproar with his anti-foreigner slurs and Facebook selfies showing him sporting a Hitler moustache and hair-do.
But the movement has again gained momentum as the influx of new arrivals has grown, drawing 10,000 to a march last week, media reports said. Police no longer provide crowd estimates.
Numbers have especially grown in recent weeks as fears have risen among ordinary Germans that the refugee crisis may be too big a challenge for the country.
"We are the people!" they yelled at Monday's demonstration, co-opting the slogan used by pro-democracy protesters whose demonstrations preceded the fall of the Berlin Wall.
"I'm not a right-winger, but I'm scared," said Frank, 59, one of the few protesters who agreed to speak to AFP, on condition he not be fully named.
"I think of my children and grandchildren," he said, voicing fears about the "Islamization" of his country.
"We fought for our freedom 25 years ago, we have to demonstrate again.
"I am OK with welcoming sick and wounded refugees, but in the TV images we can see young men. Those are economic refugees," he added.
Uwe Friedrich, 46, said he had been with Pegida since the start, and wanted Muslims to leave the country. He was waving a sign that read: "We have a right to our German homeland and German culture."
Another placard quoted Hungary's hawkish Prime Minister Viktor Orban, who recently described the refugee influx as "a German problem" - raising the question: "Where are the life rafts for our children?"
Another, more ominous sign read: "Resistance has become a duty against our country's destruction by Merkel & Co."