Germany's main neo-Nazi party pretends to be democratic. But its members hoard weapons, plan to rebuild Hitler's Reich and are using the economic crisis to try to make sweeping gains in this year's elections, a new and disturbing study of the extreme right has revealed.

To write their exposé on the increasingly influential neo-Nazi National Democratic Party of Germany (NPD), the authors spent two years infiltrating Germany's far right. They interviewed party leaders and defectors who have since quit the organisation in disgust. "The NPD is a dangerous organisation," warned Olaf Sundermeyer, one of the two journalists who wrote In the NPD, published in Germany last week. "It pretends to be democratic, but make no mistake about it: these people are genuine Nazis."

Despite government attempts to ban the party, the overtly racist NPD has already won seats in two of Germany's 16 regional state parliaments. It has some 220 members on local councils, and expects to consolidate its political power base in a series of regional and local polls this year. The NPD's leader, Udo Voigt, admits that his party is unlikely to gain a foothold in the national parliament in Germany's general election this September. But he insists: " My vision is to obtain seats in the Reichstag in 2013."

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To outsiders and the press, the NPD tries to portray itself as a middle-class party. Members are schooled in Berlin on how to cope with difficult questions about the Third Reich and the Holocaust. At election time, rank-and-file skinheads are replaced by men with short haircuts and suits and its handful of far-right "intellectuals".

In their book, Mr Sundermeyer and his co-author, Christoph Ruf, make it clear that the economy and unemployment are playing into the hands of the NPD. The party has infiltrated militant jobless groups, and is winning support. "Germany's ability to cope with such developments is going to be on trial in 2009. It will be a test of the country's political maturity," they warn.

Some of the most disturbing revelations about the NPD, which began life in the mid-1960s, are provided by former members who were shocked by the violence of its members and their hero-worship of Adolf Hitler. Uwe Luthardt, a taxi driver, was in the NPD leadership for three years, but resigned after watching his party colleagues severely beat a punk rocker who had shouted "Goodnight white pride" at the group. "It was the straw that broke the camel's back," Mr Luthardt said.

He revealed that the party's regional headquarters in Jena is deliberately called the "Brown House" after Hitler's Munich HQ. The cellars of the building contain a weapons cache, and are adorned with photographs of SS men. Party members sing the outlawed Nazi "Horst Wessel" anthem and a song called "We're Going to Build an Underground Train Line from Jerusalem to Auschwitz".

Mr Luthardt described how the party is funded by donations from expatriate Nazis and their families who fled to South America after the Second World War. Cash also comes from concerts staged by far-right skinhead rock bands. "The objective is to bring back the Third Reich," he said.

"A new organisation of stormtroopers would take revenge on anyone who disagrees with them. The concept is simply: let's kick out all the foreigners, then Germans will have jobs again. The are convinced that they will win an election one day, and that then things will really get going."

Mr Ruf and Mr Sundermeyer say some areas of eastern Germany have been designated "national liberation zones" by the party, because intimidated foreigners do not dare to be seen there. The head of the NPD's youth wing, Michael Schäfer, justifies the party's anti-foreigner campaign, saying: "The German Volk [people] have existed for 1,000 years; they cannot simply be allowed to disappear."