Police raided about 100 properties across Germany on Thursday and seized material belonging to a right-wing youth group which officials said was neo-Nazi.
The Interior Ministry said it believes the Heimattreue Deutsche Jugend (HDJ), which organizes camping holidays for children and young people, pursues unconstitutional aims.
"Personal computers and written documents were confiscated and officials are combing through them. If they find proof of aggressive, anti-constitutional behavior, a ban may follow," said a ministry spokesman, adding that police made no arrests.
The HDJ is a neo-Nazi youth club which offers young people leisure activities but also familiarizes participants with Nazi thinking and leads them blindly into right-wing extremism, the ministry said in a statement.
"We must be vigilant of efforts to attract children and young people through seemingly unpolitical leisure activities which lead them astray into a Nazi mentality," said State Secretary August Hanning.
More than 60 years after World War Two and the Holocaust, right-wing radicalism is still a problem in Germany, especially in former communist eastern states where unemployment is high. Far-right crime is on the rise.
It is illegal to display Nazi symbols, like the swastika, and deny the Holocaust in which at least 6 million Jews were murdered by Nazis.
In May, Germany banned two right-wing organizations described by Interior Minister Wolfgang Schaeuble as "reservoirs of organised Holocaust deniers".
On its website, the HDJ says it fights for an independent Germany, for traditional values and for a lifestyle reflected in a healthy body, spirit and character. It also fights the use of English in the German mother tongue.
Its newspaper "Firebrand" has a subtitle "Young, Wild, Loyal to the People".