Its members have been dubbed the “pinstriped Nazis” and they refer to their demonstrations as “evening strolls” through German cities. But on Monday night, an estimated 15,000 people joined Pegida, or Patriotic Europeans Against Islamisation of the West, in a march through Dresden carrying banners bearing slogans such as “Zero tolerance towards criminal asylum seekers”, “Protect our homeland” and “Stop the Islamisation”.

Lutz Bachmann, the head of Pegida, a nascent anti-foreigner campaign group, led the crowds, either waving or draped in German flags, in barking chants of “Wir sind das Volk”, or “We are the people”, the slogan adopted by protesters in the historic “Monday demonstrations” against the East German government in the runup to the fall of the Berlin Wall.

Associating themselves with the freedom demonstrations has given Pegida protests an air of moral respectability even though there are hundreds of rightwing extremists in their midst, as well as established groups of hooligans who are known to the police, according to Germany’s federal office for the protection of the constitution.

“The instigators are unmistakably rightwing extremists,” a federal spokesman said.

It was the ninth week in a row that Pegida had taken its protest on to the city’s streets in the eastern German state of Saxony.

Its first march, advertised on Facebook and other social media, attracted just 200 supporters. By last week the figure had risen to 10,000. By Monday night it had grown to an estimated 15,000.

“Muslims are plotting to infect our food chain with their excrement,” said a man in his 60s, who refused to give his name.

Another, a middle-aged woman in a red leather jacket, said she was shocked that “asylum seekers in Germany have expensive mobile phones, while I cannot afford such luxury and others still cannot afford to eat properly”.

While avoiding blatantly racist slogans, some told the Guardian of their angst over the “demise of the West” due to the rise of Islam or voiced their distaste of salafists and homosexuals in the same breath, or decried the recent decision by local politicians to increase the number of homes for asylum seekers. One group, knocking back bottles of the local beer, talked openly of their fears of what they call “fecal jihad”.

Mario Lupo, a 40-year-old tourist from Milan, was among the onlookers sipping glühwein at Germany’s oldest Christmas market, the Striezelmarkt.

“We came here for the romance and joviality of the Christmas markets,” he said. “We expected some light-hearted carousing appropriate to this time of year, but didn’t expect to stumble upon these rabble-rousers and police in riot gear.”

Among the groups taking part, according to the police, were two soccer hooligan organisations already known to the police called “Faust des Ostens” (Fist of the East) and Hooligans Elbflorenz (Florence of the Elbe Hooligans), as well as members of the National Democratic Party (NPD). Alongside them were old and young men and women, including families with children in pushchairs, many of whom said they had no political affiliation.

At one of two counter-demonstrations taking place elsewhere in the city centre, participants were keen to counteract the negative publicity the city of Dresden – usually better known for its splendid baroque architecture than its politics – has been receiving of late.

Its participants held banners reading “Act against the right” and “Nazis, no thanks”. The leader of the Green party, Cem Özdemir, who took part in the counter-protest, told the Guardian: “Being in a party whose members took part in the 1989 Monday demos, I take great umbrage at the abuse of the slogan used back then, ‘Wir sind das Volk’.

“We need to be permanently vigilant to ensure that Germany stays as open-minded as it had become in recent years and the government needs to ensure that it doesn’t take for granted that the far right will not make ground.”

Pegida’s growing presence has presented politicians with a dilemma over how to uncouple the strong neo-Nazi element believed to form the core of the protests from ordinary Germans with grievances against the government, who make up the bulk of the protesters.

Almost two-thirds of Germans, according to a poll for news magazine Spiegel by the TNS institute, believe that Angela Merkel’s government is not doing enough to address concerns about immigration and asylum seekers, and 34% think Germany is enduring a process of “Islamisation”.

The chancellor had earlier warned that a right to demonstrate did not extend to “rabble-rousing and defamation” against foreigners.

Merkel said that those participating in the protests should “take care not to be exploited” by radical elements trying to tap into fears of a foreigner takeover in Germany.

Led by Bachmann, a 41-year-old butcher’s son who runs a PR agency, Pegida has spawned clones across Germany. Legida is the name of the Leipzig branch, Bogida the Bonn branch, while in Darmstadt it is known as Dagida.

At a recent rally in Dresden, Bachmann’s hometown, he told his followers that while asylum seekers enjoyed luxury accommodation, many impoverished German pensioners were “unable to even afford a single slice of Stollen” (German Christmas cake).

Bachmann, who has a criminal record for burglary, for which he was sentenced to over three years in prison, and a conviction for drug possession, has claimed he is an insignificant part of Pegida.

“I’m just a small cog in a much bigger wheel,” he told the Süddeutsche Zeitung in a rare interview.

But political scientists have said the group’s presentation of itself as a harmless protest movement is what makes it so insidious.

“Something quite new is brewing here,” said Hajo Funke, a researcher into rightwing extremism at the Free University in Berlin. “We haven’t seen rudiments like these of an extreme rightwing inspired mass movement for years”.

Funke said that even the group’s name was incendiary. “It’s nothing short of a veritable call to arms by far-right populists,” he said, suggesting that the message triggered comparisons to Third Reich propaganda.

But across Germany resentment over a sharp rise in the number of refugees seeking political asylum in Germany, many from war-torn countries including Syria, Somalia, Afghanistan and Iraq, has grown in recent months.

Last Friday, a newly refurbished home for asylum seekers in Nuremberg in southern Germany was badly damaged in an suspected xenophobic arson attack. Anti-foreigner slogans and swastikas were found daubed on the walls.