Critics including tech giants and human rights campaigners say the legislation could have drastic consequences for free speech online.
The proposed measure would fine social networking sites up to 50 million euros (USD 56 million) if they fail to swiftly remove illegal content, including defamatory "fake news."
It's scheduled for a vote in parliament Friday, the last session before summer recess and September's national election, and is widely expected to pass.
The UN's independent expert on freedom of speech, David Kaye, warned the German government earlier this month that the criteria for removing material were "vague and ambiguous," adding that the prospect of hefty fines could prompt social media companies such as Facebook and Twitter to delete questionable content without waiting for a court to rule it's unlawful.
The bill is the brainchild of Germany's justice minister, Heiko Maas, a member of the center-left Social Democratic Party that is the junior partner in Chancellor Angela Merkel's coalition government.
He accuses social networks of failing to prevent their sites from being used to spread inflammatory views and false information long illegal in Germany.
After World War II, the country criminalized Holocaust denial and any glorification of its Nazi past, citing the genocidal results such ideas produced as proof of the need to ban them from public debate.
The bill has been spurred by a rise in anti-migrant vitriol that has grown with the arrival of more than 1 million refugees from mostly Muslim countries in the past two years.
Maas blames unbridled social media for stoking tensions that have spilled into real-life violence such as arson attacks on asylum-seeker homes and attempts to kill pro- migrant politicians.
The reason for his ban is still unclear Twitter refuses to publicly discuss individual cases but those who hold similar opinions worry they could be next.
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