Karlsruhe (Germany) (AFP) - Germany's highest court on Tuesday began hearing a landmark request to ban a neo-Nazi fringe party that openly rails against migrants, more than a decade after a first attempt failed.

The case comes at a time when a record influx of refugees and migrants has polarised German society, and as the number of racist hate crimes has surged.

The case before the Federal Constitutional Court argues that the far-right and anti-immigrant National Democratic Party (NPD) is a threat to the country's liberal democratic order.

Constitutional court chief justice Andreas Vosskuhle opened the hearing by pointing to the dilemma of banning a political party, something Germany last did almost 60 years ago.

A party prohibition "is a sharp and double-edged sword that must be used with great caution," he told the packed courtroom.

"It limits freedom in order to preserve freedom."

The bid to ban the party, seize its funds and prohibit successor organisations will require a majority of six out of the panel's eight judges, who were set to initially sit for three days and later issue their verdict.

Chancellor Angela Merkel's government supports the case, although the executive has not formally joined the high-stakes legal gamble, launched by the Bundesrat upper house of parliament which represents Germany's 16 states.

The states must convince judges that, under the definition of Germany's Basic Law, or constitution, the NPD spells an active threat to the democratic order and holds an "aggressive and combative attitude."

They will also seek to prove the Bundesrat's contention that it is creating a "climate of fear" and "shares essential characteristics" with the Nazis.

Bundesrat president Stanislaw Tillich charged that "the NPD is a racist, anti-Semitic, revisionist and anti-democratic party".

"The past two years especially have shown the NPD's ability to draw crowds and incite hatred," Tillich, premier of the far-right hotbed state of Saxony, told the court.

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"Violence against people and property and arson attacks on asylum shelters are a consequence of their racist ideology."

Critics charge the proceedings will give the NPD, a party with only about 5,200 members, a national stage and that a ban could turn its leaders into martyrs for their racist cause.

- Rising xenophobia -

The party, founded in 1964 as a successor to the neo-fascist German Reich Party, scored just 1.3 percent in 2013 federal elections and has never crossed the five percent hurdle for entry into the national parliament.

However, it is represented in one state assembly and many town councils in the former communist East.

It also has one seat in the European Parliament, held by former party chief Udo Voigt who once labelled Adolf Hitler "a great statesman".

While NPD activists have sought to exploit rising xenophobia, they have failed to make gains at the ballot box.

The right-wing populist Alternative for Germany has meanwhile entered five state parliaments and is polling nationally around 10 percent less than two weeks before elections in another three states.

- 'Undercover informants' -

Post-war Germany has banned only two political parties -- the far-right SPR in 1952, and the German Communist Party four years later.

A 2003 attempt to ban the NPD failed because the presence of undercover state informants within party ranks was seen as sullying the evidence.

Tillich told the court that security services had since late 2012 pulled all undercover sources from senior party ranks.

NPD lawyer Peter Richter cast doubt on this and suggested his party may still be watched by Germany's domestic and military secret services as well as foreign intelligence agencies.

He also accused two judges who were previously politicians and had attacked the NPD of being biased and asked them to recuse themselves.

However, Vosskuhle said that judges are not in principle barred from making political statements, especially if they did so before they assumed their posts on the bench.

Richter further charged that the claimants sought to "turn a state based on the rule of law into an ideologically-based state".

Some have criticised the high-profile case against the NPD, arguing that it won't stop other far-right groups, including the Islamophobic PEGIDA movement.

Others say a prohibition would send a strong signal against xenophobes.

Justice Minister Heiko Maas cautioned that "even if the NPD is banned, that unfortunately doesn't mean there is no more right-wing extremism in Germany".