Germany's federal and state interior ministers have declared the Church of Scientology unconstitutional, clearing the way for a possible ban.
Critics of Scientology say its views are too "black and white"
The ministers have asked Germany's domestic intelligence agency to examine whether the Church's legal status as an association could be challenged.
Scientology is not recognised as a religion in Germany.
A Church of Scientology statement said the ministers were "completely out of step with the rest of the world".
The attempted ban is "a blatant attempt at justifying the on-going and never-ending discrimination against the Church of Scientology and its members in Germany," said the Church in a statement.
Critics accuse the organisation of cult-type practices and exploiting followers for financial gain.
But Scientologists reject this and say that they promote a religion based on the understanding of the human spirit.
Since January, when the Church of Scientology opened a new centre in the German capital, Berlin, Scientologists have come under intense public scrutiny.
People living near the centre complained that its members were actively trying to recruit and some politicians called for the organisation to be banned, accusing it of cult-type practices.
Actor Tom Cruise is a high profile follower of Scientology
For years, Scientology has been monitored by German intelligence agencies, who claim the movement's structures and methods could pose a threat to the rule of law and "democratic order".
But the Church of Scientology insists that 10 years of surveillance "has uncovered absolutely no wrongdoing".
Under the ministers' new plan, the intelligence services have been asked to draw up a report on Scientology, and ministers will then have to clarify whether there is a legal basis for a ban.
But the BBC's Tristana Moore in Berlin says given the lobbying power of Germany's 6,000 Scientologists, who say they have a right to freedom of religion, it will be difficult to introduce a ban.
Scientology was founded in the United States in the 1950s by science-fiction writer L Ron Hubbard.
In October, a Spanish court ruled that the Church of Scientology of Spain should be re-entered into the country's register of officially recognised religions.