André Poggenburg, 43, has made negative headlines in the past with racist comments, such as defaming Germany's large ethnic Turkish minority as “camel drivers” and “cumin traders”.
His new Facebook and Twitter profiles show a blue cornflower, the symbol used by Austrian Nazis during World War II.
Presenting his new group, “Awakening of German Patriots” (ADP), he said the party hopes to attract primarily people who have previously not voted, national news agency DPA reported.
Poggenburg is the former AfD party chief in Saxony-Anhalt state in Germany's ex-communist east, the heartland region of the Alternative for Germany.
The five-year-old AfD, the country's biggest opposition party, opposes multiculturalism, Islam and the immigration policies of Chancellor Angela Merkel, whom it labels a “traitor”.
Poggenburg formed the splinter group after differences with the leadership of the party that in 2017 elections scored 13 percent nationwide.
His new ADP sees itself as nationalist-conservative and allied with extremist groups such PEGIDA, Patriotic Europeans against the Islamisation of the Occident.
Poggenburg said his new party plans to run in state elections later this year in Saxony, Brandenburg and Thuringia.
The head of the Forsa polling institute Manfred Güllner said that if the new grouping crosses the five-percent hurdle to enter a regional parliament, it could weaken the AfD.
But success is far from assured since the AfD still has similarly extreme figures, among them Björn Höcke in Thuringia and Andreas Kalbitz in Brandenburg.
Höcke has sparked outrage with statements on Germany's Nazi past, calling Berlin's Holocaust monument a “memorial of shame” and urging a “180-degree shift” in the country's culture of remembrance.
Germany's domestic intelligence agency said Tuesday Höcke's AfD grouping “The Wing” (Der Flügel), as well as the party's youth organisation JA, which is suspected of having ties with the extremist Identitarian Movement.