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Swathes of a German city have been evacuated after a bomb was found reportedly on a children's carousel inside a Christmas market.

German police has confirmed special forces were deployed to Potsdam market to investigate the item which was handed in to a nearby pharmacy.

A verified police Twitter account, Police Brandenburg_E, said the "IED suspicion has been confirmed" and said an evacuation was under way where the discovery was made.

The post read: "The USBV suspicion has been confirmed. The affected area in the city center of Potsdam must be cleared! Please note our loudspeaker announcements!"

In an update, police said the package had now been defused.

Local media reported the item was apparently found on a children's carousel at a festive market.

(Image: REX/Shutterstock) (Image: REX/Shutterstock) (Image: DPA) (Image: REUTERS)

Journalist Ulrich Wangemann tweeted the "cylindrical object" was stuffed with nails, according to security sources.

According to reports, the package, which measures 40x50cm, was handed in to a pharmacy, where staff noticed "suspicious wires and technology" inside it.

Police were called at 2.30pm local time and responded by shutting the market while surrounding shops and restaurants were also cleared, Potsdamer Neueste Nachrichten reported.

The object was examined by specialist bomb disposal officers.

(Image: DPA) (Image: REUTERS) (Image: REUTERS)

Pictures shared on social media show police cordons have been put in place near the market while officers have been stationed around the city.

No advanced threats were received before the device was found, it was reported.

Polizei Brandenburg tweeted: "We are currently in the city centre of Potsdam in use because of a suspicious item. A trap has been established already. We have requested special forces! Also the Christmas market is affected."

Potsdam is the capital of the state of Brandenburg, about 15 miles southwest of Berlin.

(Image: DPA) (Image: DPA)

The incident took place less than a week after ISIS issued a chilling call for militants to attack Christmas markets in Europe.

Extremists are said to be circulating chilling posters via messaging apps that include the phrase "soon on your holidays" in English, French and German.

The jihadist propaganda also contains images of landmarks - such as the Eiffel Tower - at Christmas time with dark terrorist images, including a hand holding a bloody knife, overlaid on top.

Another image which has emerged shows Father Christmas on his knees with his hands bound and a jihadist dressed in black standing behind him in what appears to be London's Regent Street.

The images were intercepted by BlackOps Cyber, a dark web intelligence agency, several days ago, the Epoch Times reported.

It also comes just weeks before the first anniversary of the Berlin truck atrocity.

On December 19 last year, 12 people were killed and 56 were injured when a lorry deliberately ploughed through crowds attending a festive market.

A video found by police showed the driver, a 24-year-old Tunisian named Anis Amri, had pledged allegiance to ISIS.

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This year, German authorities have erected concrete bollards at markets to prevent a repeat of the atrocity with some even gift-wrapped and given festive decorations.