Posing as a Damascus fruit seller, army lieutenant Franco Albrecht, 28, had managed to gain asylum in his home country, obtaining a space in a shelter and monthly benefits of €409 ($447) even though he speaks no Arabic, investigations found.
Officials say Albrecht - who harboured far-right, anti-immigrant views - was plotting an attack that he planned to blame on refugees.
The case, which came to light last week, has sparked an outcry in Germany, where scepticism was already running high over the authorities' ability to competently handle the record influx of refugees.
It adds fuel to criticism of the asylum bureaucracy raised by activists and legal experts over recent months.
Critics have warned that many officials and interpreters are under-qualified, and that chaos engulfing the administration could harm vulnerable victims fleeing the horrors of war.
Take the case of Mohamed Homad, a Syrian refugee from Aleppo, who last October received two conflicting decisions on his asylum application.
In the first letter, he was accorded refugee status which grants him residence for three years as well as the right to bring his immediate family members to Germany.
In the second letter, which arrived just a few days later, however, he was only given subsidiary protection - which rules out family reunion, Homad told AFP.
To his dismay, his lawyer explained to him that authorities claimed that the first letter was just a draft and not valid.
With tens of thousands of refugees arriving in Germany every week in the summer of 2015, the Federal Office for Migration and Refugees (BAMF) suddenly found itself drowning in a flood of new files.
Within a few months, BAMF, which is tasked with interviewing asylum applicants and deciding on their requests, had to recruit many more staff, more than doubling its employees from 3,000 to 7,300.
Management accountants, geography experts and even army soldiers were drafted in to fill the gap.
And training given to new case officers was drastically shortened to as little as 10 days from 14 weeks.
'Quantity not quality'
"Only quantity matters, and not quality", as officials work through a massive pile of applications, charged Sebastian Ludwig of the Protestant Church social organisation Diakonie.
Despite the recruitment drive, the BAMF was running a backlog of a massive 450,000 files in 2016.
Some asylum-seekers were therefore forced to wait more than a year before hearing back on their fate.
Others called in by the BAMF were made to wait hours for their individual interviews before being sent home without being heard as time ran out.
Interpreters, who were recruited en masse and lowly paid, were rarely professionals. In some cases, they hardly knew the language they were meant to translate.
"Increasingly often, people decided on the applications even though they knew nothing," charged Hubert Heinhold, a Munich-based lawyer specializing in asylum cases for decades.
"They don't know the basics of asylum law," he told Die Zeit weekly.
Refugee rights group Pro Asyl also had sharp words for some practices in the asylum procedure - including that officers examining applications are not always those who had carried out the individual interviews.
"Personal impression is key in making a correct decision because in an asylum procedure, it's the credibility of the asylum seeker that counts," said Pro Asyl, pointing out that refugees are often unable to provide material proof of persecution they suffered.
BAMF meanwhile said it would take another look at the controversial practice, even as its chief Jutta Cordt stressed that "we place big responsibility on each decision made about an asylum request".
She vowed that "we will give people the time they need to explain in detail why they decided to flee".
By Yannick Pasquet, AFP