Angela Merkel's government on Tuesday removed domestic spy chief Hans-Georg Maassen from office, transferring him to a different post to end an explosive row over immigration and the far-right that once more rocked the German chancellor's fragile coalition.

"Mr Maassen will become state secretary in the interior ministry," Merkel and the leaders of her coalition parties announced in a statement after crisis talks.

The face-saving compromise lets Merkel's fourth-term government live another day, after her Social Democratic coalition partners had insisted on Maassen's departure, against the wishes of interior minister Horst Seehofer from her Bavarian CSU sister party.

Maassen, 55, became the center of a heated controversy after he raised doubts about the veracity of reports of far-right hooligans and neo-Nazis randomly attacking immigrants in the eastern city of Chemnitz in late August.

In his senior new role, essentially a promotion, Maassen will not be responsible for overseeing the BfV intelligence service, the party leaders stressed in their statement.

It was not immediately clear who will replace Maassen as head of the BfV office.