The 27-year-old assailant wounded 15 people, four of them seriously, near a cafe in the southern city of Ansbach last night when he set off a bomb in his rucksack, killing himself.
"A video made by the assailant was found on his mobile phone in which he threatened an attack," Bavarian state interior minister Joachim Herrmann told reporters.
"After that he announced in the name of Allah that he pledged allegiance to (IS chief) Abu Bakr al-Baghdadi, well- known Islamist leader, and announced an act of revenge against Germans because they were standing in the way of Islam."
Europe's economic powerhouse was already reeling after nine people were killed in a shopping centre shooting spree in Munich on Friday and five people were wounded in an axe attack on a train in Wuerzburg on July 18 that was claimed by IS.
All three brutal incidents were in Bavaria, the southern state that is a gateway for tens of thousands of refugees under Chancellor Angela Merkel's liberal asylum policy.
"Most of the terrorists who carried out attacks in recent months in Europe were not refugees," she told reporters.
"The terrorism threat (among refugees) is not larger or smaller than in the population at large."
Police said the Syrian man intended to target the open-air festival but was turned away as he did not have a ticket, and detonated the device outside a nearby cafe.
"If he had made it inside, there would certainly have been more victims," a police spokesman said.
The attacker, who came to Germany two years ago but had his asylum claim rejected after a year, had tried to kill himself twice in the past and had spent time in a psychiatric clinic, authorities said.
He was facing imminent deportation to Bulgaria, where he was first registered within the European Union as an asylum seeker and which had granted his claim, a German interior ministry spokesman said.
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