The latest march of the right-wing populist PEGIDA movement in the eastern city of Dresden came a day before Merkel and most of her cabinet were set to join a Muslim community rally for religious tolerance.
Undeterred, supporters of the self-styled "Patriotic Europeans Against the Islamisation of the Occident" gathered for the latest of a string of rallies that have recently drawn 18,000 people onto the streets of Dresden in the former communist east Germany.
One carried a picture of Merkel wearing a Muslim facial veil, mocking the chancellor who has urged citizens to stay away from PEGIDA marches.
Merkel earlier said she and several members of her cabinet would tomorrow attend a vigil organised by Muslim groups in Berlin to denounce extremist violence and social division.
"Germany wants peaceful co-existence of Muslims and members of other religions," Merkel told reporters after talks with Turkish Prime Minister Ahmet Davutoglu, adding that tomorrow's vigil would send "a very strong message".
The latest PEGIDA demonstration came after a firebombing early yesterday of the offices a tabloid in the northern city of Hamburg that had reprinted cartoons of the Prophet Mohammed from Charlie Hebdo.
German police were investigating whether there was a link between the show of support for the French weekly and the arson attack but let two suspects detained yesterday go for lack of evidence.
As a security precaution, the eastern city of Leipzig, which saw its first PEGIDA-style demonstration today with several hundred marchers, has banned displays of Mohammed cartoons.
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