"Germans who participate in fighting abroad for a terror militia and who have another citizenship should lose their German nationality," Thomas de Maiziere said.
Some 820 people have left Germany to fight alongside jihadist groups in Syria and Iraq, according to estimates by Germany's secret services.
With around one in three fighters having since returned to Germany, fears are running high of the threat they may pose on European soil.
But the proposal is controversial. Green lawmaker Volker Beck swiftly condemned it as "desperate activism".
De Maiziere himself also acknowledged that junior coalition partner the Social Democrats is likely to raise objections.
But he pointed to German legislation which already allows for citizens with dual nationalities and who fight for a foreign army to be stripped of their German citizenship.
"So if someone fights for terror militia that is similar to an armed force, and which calls itself an army, I don't see why this should not be considered," he argued.
In the wake of the November 13 Paris attacks, France President Francois Hollande had proposed stripping convicted terrorists of their French nationality. But the suggestion had to be dropped after a fierce debate, as
critics warned it would create stateless persons.
Looking beyond the problem of homegrown jihadists, de Maiziere also introduced plans to tackle threats posed by foreigners to Germany, including speeding up the deportation process for those convicted.
Germany's toughened stance comes after two attacks in July by migrants in the southern state of Bavaria -- an axe rampage on a train in Wuerzburg and a suicide bombing in Ansbach.
In Würzburg, the 17-year-old attacker was shot dead by police after injuring five people. In Ansbach 15 people were injured after a failed Syrian asylum seeker detonated an explosive device outside a music festival, killing himself.
The link to migrants has put intense pressure on Chancellor Angela Merkel over liberal asylum policies that had brought 1.1 million refugees to Germany last year.
With two state elections in September - at Merkel's stronghold Mecklenburg-Western Pomerania and in Berlin - concern is growing among the political mainstream that populist party AfD could make record gains, ahead of general elections next year.
De Maiziere said the latest anti-terror measures should be adopted before the 2017 elections in the autumn.
On the policing front, staffing will be boosted with 4,600 new posts to be created over the next year. In addition, spending on security would be raised by €2 billion by 2020.
A special division will be set up within federal police forces that would coordinate security efforts in terror situations, said de Maiziere.
In addition, a new unit would be formed to draw up strategies and design tools to combat cyber-crime and terrorism.