German police on Friday secured a device full of wires and nails found near an outdoor Christmas market in the city of Potsdam, but could not establish whether it had contained explosives.
A controlled explosion was carried out on the suspicious package.
Police evacuated a large area of Potsdam's old town center on Friday, including parts of the market, and closed stores while they investigated the package, which had been delivered to a pharmacy.
A robot using water jets was used to ensure the device was safe, officials said.
They later said that their officers had defused the explosive.
Interior Minister Karl-Heinz Schroeter said the powder would be analysed to determine if it was genuine or a dummy.
Following large-scale raids in four German cities on November 21 that resulted in the arrest of six Syrian nationals, a German intelligence officer initially told CNN that the arrests uncovered a possible terror plot on a Christmas market in Germany.
"But the people here understand what's going on and take the measures very seriously".
Christmas markets in Germany are on high alert this year, with strengthened security checks and roadblocks in a bid to avoid deadly terrorist attacks from happening again.
In that case, a Tunisian man hijacked a truck and drove it into a crowded market, killing 12 people in an attack that was later claimed by the Islamic State group. The suspect, Anis Amri, was killed later in a shootout with police in Italy.
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