Flügel, which has about 7,000 members, was co-founded by notorious AfD lawmaker Björn Höcke, who has sparked outrage with attacks on Germany's culture of remembrance for Nazi crimes.
The party's executive committee decided in Berlin on Friday that the faction should be dissolved by April 30th, the spokesman confirmed.
Several AfD lawmakers at state level had been urging the party to take measures against the controversial group, but its weight within the party had largely secured it against attack until now.
Germany's domestic VS intelligence agency last week placed Flügel under formal surveillance, saying it violated “characteristic features of the free democratic basic order, human dignity, democracy and the rule of law”.
The classification would allow the authorities to tap members' phones, store personal data, recruit informants among its ranks and infiltrate undercover agents.
Announcing the measures, intelligence chief Thomas Haldenwang said
far-right extremism and terrorism were currently “the biggest danger for
democracy in Germany”, counting around 32,000 adherents nationwide including
Founded in 2013 as a protest party against the euro single currency, the
AfD has grown and shifted further right over the last seven years.
Railing against Chancellor Angela Merkel's decision in 2015 to keep Germany's borders open to refugees, the AfD has scooped up a significant number of votes from those unhappy with the government's migration policy.
It is now the largest opposition group in the Bundestag, Germany's lower
house of parliament.
Germany has been hit by several right-wing extremist attacks in recent months.
A gunman with apparent far-right beliefs killed nine people at a shisha bar and a cafe in the city of Hanau in February, while two people were killed in an attack targeting a synagogue in Halle in October.
In June, pro-immigration politician Walter Lübcke was found dead at his home in the state of Hesse, with a far-right sympathiser the prime suspect.
Mainstream politicians have pointed the finger at AfD and its rhetoric as
fuelling the violence.